ECONOMICS

Assignment



Assignment

Introduction

Australia is in the midst of the most remarkable resources boom in its history: both mining investment and terms of trade are at record levels and investment is continuing to increase further. But, the domestic economy is slowing: real GDP rose by only 1.4% over the past year, while employment has been virtually flat in the first nine months of 2011, with unemployment rising a little. This whole scenario brings into consideration the importance of monetary and fiscal policy. Up until now, both the Australian government and the Reserve Bank of Australia (RBA) has done exceptionally well in managing the economy, through their macroeconomic policies. The economy has fared positive result, despite the challenges the Australian economy faces domestically and on the international front.

Discussion

Australian Economy is one of the fastest growing economies of the world. It is ranked 13th in the world in terms of Nominal GDP. In 2010, Australian GDP increased by 3.94% to $882.344. For last two decades, Australia has been enjoying a robust growth with an annual real GDP growth of 3.3%. Australian economy is dependent on the services and resources industries. Australian Economy is divided into two parts west/east economy. The services sector is dominated by the Eastern part of Australia, while Western Australia controls the natural resources of the country. Australia in past decades has been significantly dependent on trade with western countries, but with time and reforms introduced by the country, it is now not heavily dependent upon on trade with western countries.

Australian has an excess of natural resources, which it exports to different countries of the world. Its most significant trading partner is China as Australia exports various minerals to China in bulk amount. It also trades significantly with America and other European countries. Economic slowdown and high debt burden of European countries offer booming threat to Australian economy (Macdonald, 2010, pp. 449-650). Australian economy has also been hurt with the floods in the country as the GDP has declined in the last two quarters, and it has fallen by 1.1%. The current account deficit has also been increasing due to the major issues faced by the country.

The Australian government has launched reforms in taxation and social welfare to enhance incentives for hiring. The government has announced plans for a major reform of industrial relations that seeks to create a single national system to reduce the extent of the law on dismissals, change the setting of minimum wages and work conditions more flexible. Government micro-economic policies are designed to minimize the fluctuations so that the economy can have low inflation, low rate of unemployment and stable economic growth. The factors that have contributed to Australia's financial growth in recent years have been a strong focus on maintaining low inflation, Low interest rates, productivity levels due to micro-economic reform, business and consumer confidence, large increases in asset prices, the strong performance of the US, new technologies helped to raise productivity and efficiency levels, and keeping economic growth at a sustainable level (Kohli, 2004, ...