Economics Assignment: Impact Of Covid-19 On Macroeconomic Factors Of Australia

Question

Task: Write an economics assignment addressing the following points:

(a) Explain how GDP, inflation and unemployment are measured in your country. Provide real life examples.
(b) Explain the macroeconomic effects of COVID-19 pandemic on your country using economic theory, real life data such as GDP, unemployment and inflation, and illustrate them on appropriate diagrams.
This is your case study that you need to describe in details, provide relevant information, use table, diagrams where appropriate. You should use real data as much as possible. Refer to the textbook for the theoretical framework.

(c) Using your home country as a case study outline two main macroeconomic measures government applied to the national economy due to COVID-19 pandemic. Analyse the effect of such measures on inflation, GDP and employment using economic theory. What measures would you suggest and why? Explain using theory and real data. Use economic theory and real data to analyse the issues. Explain whether the measures are based on fiscal policy and/or monetary policy.

Answer

Background of Economics Assignment
Covid-19 has impacted the world economy to a great extent and the Australian economy is no exception here. Due to the month-long lockdown and lack of vaccination has stalled the world economy during the last three quarters of the 2020 and first two quarters of 2021. In case of the Australian economy, it has been observed that due the Covid19, there has been fall in the real GDP by 7% compared to previous year and Gross Domestic Product (GDP) growth rate has been reduced by -5% (rba.gov.au 2021). There has been increased tension in the commodity, money and labour market in case of the Australian economy leading to a drastic fall in the economic performance of the state.

Through the present analysis, focus has initially been provided to the measurement of the GDP, inflation and unemployment measurement. Then underpinning the Australian macroeconomic response, analysis has been done to understand how macroeconomic factors of Australia has been influenced due to pandemic. Next to this, analysis has been done regarding the macroeconomic measurement of the Australian economy and its effect on the GDP, inflation and employment.

Process of GDP, inflation and unemployment measurement:
In order to understand the impact of the Covid19 on the Australian economy, first analysis has been done to understand the process of calculating the major macroeconomic factors like GDP, inflation and unemployment.

GDP measure:
GDP is measured by the approach of the expenditure or the income approach. In case of the Australian economy, GDP is measured by the average of the expenditure approach, income approach and production approach. Expenditure approach is calculated through adding the consumption (C), government expenditure (G), Investment (I) and next export (NX). Thus, the equation of GDP calculation by the expenditure method can be written as follows:

Y = C + G + I + NX [where, NX is Export – Import]

As per the ceicdata.com (2021), consumption expenditure of Australia is 215.573 billion USD.

As per the ceicdata.com (2021), investment in Australia is 46.13 billion USD.
As per reuters.com (2021), government expenditure of Australis is 98.28 billion USD.
As per the economy.com, net export of the Australia is 970.92 billion USD
As per the expenditure approach,
GDP of Australia = (215.573 + 46.13 + 98.28 + 970.92) billion USD
GDP of Australia = 1330.90 billon USD
Following the above-mentioned approach, it has been found that the GDP of Australia is 1330.90 billion USD and the data from ceicdata.com (2021), also demonstrates the same value. Income approach is calculated by summing the total national income, sales tax, net foreign factor income and depreciation (rba.gov.au 2021). In case of the production approach, GDP is calculated by subtracting the value of intermediate consumption from the gross output value. As the figure 1 demonstrates, after calculating the three form of GDP, it is averaged and final GDP of the state is calculated. Australian Bureau of Statistics (ABS) measures the GDP in a quarterly manner through collecting data from household, government agencies and companies.

Figure 1: Measure of Australian GDP
Source: (rba.gov.au 2021)

Inflation:
Inflation is the presentation of the increase in price level of goods and services in nominal rate compared to the previous year. Inflation in Australia is measured by the Consumer Price Index (CPI) measure that checks the check the change in percentage of price for a specific basket of goods and services by household (rba.gov.au 2021). Australian Bureau of Statistics (ABS) measures the CPI of Australia in quarterly manner that considers 87 different items in 11 groups (figure 2). During every quarter change in price of the different items are checked and then averaged to produce CPI basket.

Figure 2: Group in CPI basket
Source: (rba.gov.au 2021)

To determine the inflation rate, following formula is used:
Inflation = ((Price in year 2 – Price in year 1) / Price in year 1) * 100

Figure 3: Inflation rate over the period
Source: (rba.gov.au 2021)

Underpinning the figure 3, it can be seen that inflation rate of the Australia economy has reduced over the years and in recent time it has faced an upward swing due to the pandemic.

Unemployment measure:
Unemployment takes place, when there is labour available in the labour market who is willing to work, however, not able to achieve a job. Unemployment in the Australian market is determined by the ABS who collects the data from the labour market through survey each month. With the labour force survey, data regarding the people aged 15 years and above is collected and then participation, labour force and unemployment rate is calculated. For the calculation of the unemployment rate, percentage of people in the labour force who are unemployed is calculated.

Macroeconomic effect of Covid19 in Australia:
Impact of Covid19 on GDP of Australia:
The Covid19 pandemic unveiled how globalised economies is influenced by the impact of the natural shocks. Australian economy in case of the Covid19 pandemic has faced issue due to falling GDP, however, with the successful implementation of the stimulus policies has aided to remain afloat. Figure 4 demonstrates that during second quarter of 2020, there has been massive fall in the GDP and quarterly growth rate of Australian GDP. Month long lockdown has influenced the economy to face fall in the business performance and production that has resulted in fall in the GDP of the state too(Allan, 2021). As per the Carney (2021), it can be seen that there has been 7% fall in the GDP during 2020, which is sharpest fall in GDP post 1959. Besides, it has been expected that the business situation of the Australian economy will remain identical in 2021 leading to poor performance of the economy. However, from the last quarter of 2021 onwards, it is predicted that there will be rise in the GDP of the Australian economy to a great extent.

Figure 4: GDP situation of Australia
Source: (abs.gov.au 2021)

According to the above outline it tends to be seen that the GDP have declined radically from December 2019 to March 2020. Considering efficiency, the GDP is gradually showing signs of ascend from March 2020 to June 2020 to 3.4%(Askola et al., 2021).

Impact of Covid19 on unemployment in Australian economy:
After the Covid19 there has been a quick expansion in joblessness recurrence that is 6.2% during February 2020 in contrast with 2019 when it was 5% (abs.gov.au 2021). Besides, it has been noticed that there has been a drop in the work to 3.1% and this has brought about both full and low maintenance business dropping (abs.gov.au 2021).

Figure 5: Situation of unemployment in Australia due to Covid19
Source: (kwm.com 2021)

Impact of Covid19 on Inflation and Cash rate in case of Australian economy:
In light of the macroeconomic circumstance of the Australian economy it very well may be seen that there has been an impressive decrease in the economy due to the Covid19 and the future improvement appears to be unsure. Moreover, the swelling was high in 2019 that represented 2.2 and towards end of 2002 it dropped to 0.9. The under two figure 3 and 4 shows the swelling rate and money rate in Australia (abs.gov.au 2021):

Figure 6: inflation rate situation in Australia post Covid19
Source: (kwm.com 2021)

Moreover, the money pace of Australia has been diminished at a piercing proportion demonstrating a straight hopeful interface between the money rate and swelling proportion. At the point when the expansion proportion decreases over a period in Australian market, the money proportion has additionally been diminished to support the currency market interest and supply situation consistent (Farhoud et al., 2021). With low loan fees in the Australian economy, it tends to be expressed that the nation is had the option to withstand the declining monetary condition. There has been consistent program from RBA to support the money rate inside 0 to 0.10% to work on the loaning and speculation by the public elements while diminishing the propensity to save (abs.gov.au 2021).

Macroeconomic measurement of Covid19 in Australia:
Two main macroeconomic measure by Australian government:

Australian government due to the pandemic has taken active measures that has provided much needed boost to the Australian economy. With regards to the Australian strategy to control the post covid19 financial circumstance, in the state, then, at that point, it is critical to specify that administration of the state has been thinking about different advances. As the action to control the economy, government has taken both the financial and money related arrangement that should improve the total interest in the state. With the money related upgrade bundle of 194 billion AUD, it has been focused on by the public authority of Australia to build the total interest of the market (acoss.org.au 2021). Besides, through the imbuement of the liquidity on the lookout, government has attempted to upgrade the medical services arrangement of the state as well. As the public authority strategy, Reserve Bank of Australia has presented boost bundle of AUD 194 billion (Shane, 2019). Then again, 5 billion AUD has also assigned to the medical care arrangement of the state. This load of assets should the spent by the following three years to improve the total interest of the state and to control the pandemic circumstance. RBA has likewise diminished the approach rate by 25 premise focuses, that is expected to lessen the expense of the acquiring. Besides, through the cash trading, RBA is intended to inject extra 60 billion AUD and 90 billion AUD bundle has been presented by the RBA for the Small to Mid-sized endeavours (Jericho, 2020). By these action, Australian government is intended to upgrade the market execution in the coming a long time through business age and decrease of the expansion.

As the major macroeconomic measure Australian government has introduced $312 billion AUD stimulus package for the coming five years. The stimulus package is almost 15.75% of the Australian GDP in 2021. As the additional stimulus package, $217.1 billion AUD has been released by the Australian government directed towards the economic reform and health sector (kwm.com 2021). Besides these, there has been series of stimulus packages from the government that has been released to counter to the impact of the pandemic in Australian economy. Among many, another major influential response to tackle the pandemic was JobKeeper program. JobKeeper program is aimed to individuals who are dwelling in Australia under Social Security Act 1991. Aside from the this, others who are having visa under uncommon classification, likewise get instalment from JobKeeper. With a $1500 AUD per fortnight, JobKeeperpolicy is aimed to help 6,000,000 Australian individuals (kwm.com 2021). JobKeeper program is aimed to enhance the skill of the workforce of Australia and enhance the productivity level too. Through the estimated cost of $101.3 billion, JobKeeper program has reflected great amount of impact on the Australian population (imf.org 2020).

Effect of measurement on inflation, GDP and employment:
As per the economic analysis of the policy implication of Australian government, it can be seen that both the JobKeeper and fiscal stimulus package of $312 billion and $217.1 billion AUD is beneficial to influence the macroeconomic variables. As per the demand and supply model analysis (figure 7), it can be seen that, with the stimulus package, there will be rise in the supply in the economy of goods and services. This will lead to fall in price from P1 to P2 and increase in output from Q1 to Q2. Thus, the stimulus package will lead to increase in the GDP and fall in the inflation.

Figure 8: Demand and supply framework

On the other hand, in the labour market, as there will be rise in the supply, in the subsequent period, demand will also rise leading to higher demand of labour. With higher demand of the labour, employment will increase and job creation will take place. This way, government will be able to influence both the commodity as well as the labour market by the stimulus packaged mentioned. When JobKeeper program is analysed with the supply and demand framework, then it can be seen that JobKeeper will provide minimum support to the market leading to keeping demand afloat (kwm.com 2021). With the money provided directly to the consumer, it will inherently increase the supply as demand will rise. Thus, in the same fashion like stimulus package, demand will increase in successive period leading to rise in GDP and employment.

Suggested measure:
Underpinning the above-mentioned analysis, following recommendations can be made:

• Enhancing the market confidence: Market confidence in the Australian economy due to pandemic has reached to 108 points and it is expected to reduce to 98 points by 2022. Falling market confidence will lead to fall in the market operation and deteriorating macroeconomic situation. To overcome the same, it is crucial for the government to keep market confidence high so that foreign investment keeps coming in and the performance of the Australian economy continues to operate well.
• Increasing the investment rather than savings: Australian total investment has reduced to a great extent during the first quarter of 2020 and then it has started to remain at a average situation. During pre-pandemic situation, economy was having investment of 24.425% of GDP and post pandemic it has been reduced to 21.352% of GDP. Falling investment is one of the major threats to the Australian economy as it will result in a fall in the future market operation.
• Expansionary fiscal policy: through the expansionary fiscal policy government can enhance the government expenditure allowing higher investment for the public project. This will allow higher amount of borrowing and economic revival. With the additional investment of $200 billion government can enhance the GDP of the economy to a great extent by the multiplier effect.

Conclusion:
Underpinning the above analysis, it can be seen that the Australian economy has performed fairly during the pandemic situation. Through analysis of the different approach of GDP, inflation and unemployment calculation for Australian economy, it can be seen that ABS is the key institution that keeps record and provide projection and present rate of the key macroeconomic indicators of the Australian economy. When it comes to the analysis of the impact of pandemic on Australian economy, then it can be seen that with the increased pressure of the inflation and unemployment rate, government has taken expansionary fiscal policy which has impacted the GDP of the state. Though there has been fall in the GDP due to falling market and halting of economic operation owing to pandemic, however, Australian economy has returned back to pre-pandemic situation swiftly. Government budget and stimulus package of $200 billion is supposed to aid the different sectors ranging from tourism to primary sector. As per the finding it can also be seen that JobKeeper program has been one of the most crucial policy taken by the government that has helped the people of Australia to survive the pandemic. With this policy government has been able to provide minimum support to sustain the month-long lockdowns.

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