FINANCIAL MANAGEMENT

Financial Management

Financial Management

Explain what the Real GDP Growth % measures and why it is an important economic indicator

When we talk about the Real GDP Growth percentage, it can be said that it gives the annual GDP growth adjusted for inflation and expressed as a percentage. The GDP is the value of goods and services produced in the economy during a given period. It is the main economic indicator to measure the level of activity economy of a country or an economy and also measures the aggregate production (total production) of an economy. There are certain activities which are not included in GDP, and they are as follows:

Activities which are not sold

The underground economy Measurement of GDP is handled by the INE in National Accounts

Growth and productivity (% change; annual av)

2012-20

2021-30

2012-30

Growth of real GDP per head

1.6

1.8

1.7

Growth of real GDP

3.1

3

3

Labour productivity growth

1.8

1.9

1.8

Population and labour force (% change; annual av)

2012-20

2021-30

2012-30

Total population

1.39

1.19

1.29

Working-age population

1.02

0.86

0.94

Working-age minus total population

-0.37

-0.33

-0.35

Labour force

1.25

1.1

1.17

Growth and productivity (% change; annual av)

Growth of real GDP per head

1.6

1.8

1.7

Growth of real GDP

3.1

3

3

Labour productivity growth

1.8

1.9

1.8

Growth of capital stock

5.2

2.9

4

Total factor productivity growth

0.4

1.3

0.8

Referring to the RBA Money aggregates and other information that you can research on the RBA website comment on the monetary policy that the RBA is adopting and explain the reason for your answer

Referring to the RBA Money aggregates, it can be said about the money policy that the central bank has cut the OCR by 100 basis points since November 2011, as weak conditions in the global economy have slowed growth in several of Australia's export markets in Asia. In his statement announcing the decision to leave rates on hold, the RBA's governor, Glenn Stevens, argued that the existing monetary policy stance remains appropriate for now, given that inflation is low and that the country's economic growth prospects are relatively rosy. The annual rate of inflation in Australia remains very slow, owing to the high base of comparison—elevated fuel prices and supply problems pushed prices up in 2011—and sluggish local demand. Consumer prices rose by just 1.2% year on year in the second quarter of 2012. The introduction of the carbon-emissions tax at the start of July is likely to push the inflation rate up from the second half of this year, but the government simultaneously introduced its Household Assistance Package, which is designed to mitigate any cost-of-living increases generated by the new tax. The EIU expects inflation to average 2.2% in 2012. Meanwhile, real GDP growth will accelerate to 3.2% this year, from 2.1% in 2011. Against this background of steady economic growth and moderate inflation, external events are likely to influence the direction of Australian monetary policy in 2012-13. We believe that a further 25-basis-point cut in the OCR is possible in the second half of 2012, although the RBA would need to see further evidence of low inflation, financial strains in Europe and consumer caution at home before it reduced rates. We expect the central bank to start to tighten monetary policy in 2013 as global economic conditions ...