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Application of Economic Principles and Theories to Given Questions Assessment 4 Answer


Assignment 4 consists of two problem questions (worth 10 marks each) based on the subject material and require some additional research.  Sources used in your answer should be fully referenced in APA 6th style.

Answer the following questions ensuring that you apply economic principles or theory wherever possible to support your decisions. Communicate your ideas with correct grammar, spelling and writing style and support your answers with diagrams as necessary.

Question 1 (10 marks)

Define the concepts of the unemployment rate and the labor force participation rate.  Using data from the Australian Bureau of Statistics (ABS), collect information on both unemployment and labour force participation rates for the period 1980 to 2018 inclusive. Employ annual figures. Be explicit and define and provide detailed sources for the data obtained. Plot the unemployment and labour force participation rates over-time and provide an explanation of any time-series patterns, drawing upon economic principles or theory.

Question 2 (10 marks)

Employ the aggregate demand and supply model for the Australian economy, to analyse both the short run and long run consequences for real GDP and the general price level of the following scenarios. Please support your answers with research evidence, referencing and citing appropriate sources.  In your response clearly state your assumptions, distinguish between the short-run and long-run consequences and illustrate your answers with diagrams.

(a) the impact of bush fires across rural Australia,

(b) the United States and China strike new trade agreements,

(c) house prices rebound in the major Australian capital cites.


Economic Principles or Theory

Question 1

Concepts of unemployment and labor force participation rate. Use Australian Bureau of Statistics (ABS) for period 1980 to 2018. Plot unemployment and labour force participation rates over-time and provide an explanation of time-series patterns, drawing upon economic principles or theory

Unemployment is defined as term which helps in identifying individual who are employable as well as seeking job but are not able to find job (Becker, 2017). Unemployment rate is defined as share of labour force which is jobless that is expressed as percentage. This is lagging indicator which helps in rising or falling in wake of changing condition of economics than anticipating them. It is described which is divided number of unemployed person by total people in workforce along with it serving unemployment as indicators. This is essential to known about how many people are unemployed out of total and make them employed if they possess skills and knowledge in appropriate manner. Unemployment are of four types which includes structural, cyclical, seasonal and frictional. Organisation can face any types of unemployment issues in their business and leads to create negative manner. The organisation which has less unemployment are more successful than those having more number. 

Labour force participation rate is defined as measure of economy’s active workforce. The formula is aggregation of all employees who are employed or participated actively for seeking employment divided through total noninstitutionalised, civilian working age people (Burdina & Sauer, 2015) (Faccarello, 2015). This is defined as section of working population age between 16-64 in an economy currently seeking or employed employment. This is important for measuring labour force which helps in representing relative amount of labour resources which are available at time of production of products and services in an appropriate manner. The skilled and experienced will provide more benefits to society and business and leads towards success and growth in effective manner.

There are total population clock which includes 25,690,760, consumer price index is 2.2% on quarter of March 2020 (Guskova & Sterlikov, 2017). The gross domestic product is 0.5% which is quarterly changing from Dec 2019 and average earning of weekly is $1,658.70 in the month of November 2019 and Unemployment rate is 6.2% in month of April, 2020.

There is rise in unemployment rate which has increased from 1.0% to 6.2% due to arise of coronavirus in April 2020 (Kobersy & et. al., 2015). It has impacted whole word in negative manner and leads towards failure of business. From data, it has found that unemployment rate was 5.3% in 2018 which was down from previous year which was 5.6%. Data are made which is as follows:

Date Value

From the data, it has concluded that there was highest unemployment rate in year 1993 which was 10.9% and lowest in year 2008 that was 4.8% (Kucharska-Stasiak & Źróbek, 2015). This happened due to various reasons and leads to create negative impact in economy of nation. It is important that all employees should have proper employment opportunity for maximum results. Every year unemployment rate is increasing and then declining in at some point of time, it has reached to maximum which is not good for country and leads towards negative impact in development of nation. 

Labour force participation in Australia was 63.37% from 1978 to 2020 where highest was 66.20 in month of August 2019 and recorded low which was 60.10% in month of April, 1983 (Kyriopoulos, Athanasakis & Beazogloy, 2015). This is essential to provide employment to them in appropriate manner so that better results could attain in effective manner (Wunder & et. al., 2018).

It is essential to follow principle of economics to overcome issues of unemployment and labour force participation rate in best manner (Martin & Sunley, 2015). Principle is called short run trade off among inflation and unemployment where in short run when prices of products are increases then suppliers need to increase their production of products and services. For attainment of goods and services, it is important to hire more number of workers for production of goods as well as services. Whenever there is more hiring then there is lower unemployment while there is inflation. On other hand, such things do not arise in case of long run and impacting unemployment rate. This principle guides business to hire more number of people in most effective and efficient manner for positive results. 

There are many economists who believe that short run is effecting monetary injection which is lower unemployment as well as higher prices (Matthijs & McNamara, 2015). Whenever there is increase in amount of money then the spending as well as increasing will demand more number of products and services in an economy. The high demand leads to cause business to raise their prices but at same time it focus on encouraging to increase quantity of products and services when they produce and hiring more number of workers for producing more number of products as well as services. More hiring of people leads towards unemployment. The short run trade off among inflation and unemployment focus on playing key role in analysis of business cycle. This principle provides guideline to business to work in appropriate manner and solve such issues in short as well as long term in positive manner. It is important to know about reason behind arise of such issues and impacting business and nation in negative manner.

Question 2 

Demand and supply model for Australian economy, to analyse short and long run consequences for real GDP and general price level of following scenarios

(a) The impact of bush fires across rural Australia

There were several impacts of bush fires in Australia such as physical, direct impacts, ongoing ecological as well as biodiversity, public heath, fires crossing borders, mental health costs, rise in economic costs, climate feedback loops, pollution, agricultural impacts and many more (Witt, 2016). It has impact Australian economy in short and long term that has consequences for GDP as well as general price level of country. Fires have cripple confidence of consumer as well as harming industries like tourism and farming in negative manner. This has damage economic which was recorded as $4.4billion (Economic impact of Australia's bushfires set to exceed $4.4bn cost of Black Saturday, 2020). This fire has charred 8.4million hectares across whole country which can be compared with 450,000 have been affected in negative manner. It has rise risk of life of people in negative manner. Tourism bodies will be costing hundreds of millions of dollars for rebuilding. These all are regarded as long terms impact to GDP in long term effect.

On other hand, in short terms, it has impacted local people living nearby area and effects of smoke exposure as well as inhalation ranges through respiratory and eye tract irritation for creating serious disorders such as reduced lung function, exacerbated asthma, premature death, bronchitis (Nagan & Manausa, 2018). There is exposure of specified matter which is regarded as main public health threat coming from short term smoke. The surrounding people are impacted and their purchasing power also decline that create impact on economy of nations in negative manner. There is decline in worker productivity, low crop yields and increasing health spending impacting economic growth of Australia and leads to difficulty in survival and sustainability. 

Therefore, it is very important for government to make plans and strategy for overcoming from such scenario and survive and sustain at market and rising their economic development and growth by making situation back to normal in appropriate manner (North, 2016). This will helps in making economic development of nation at great speed and leads to attain success. 

(b) The United States and China strike new trade agreements

This is defined as new agreements where United States has imposed 15% of new tariffs on $112 billion of Chinese imports, which is more than two thirds of products that are imported from china which were subjected to tariffs. After two years, US and China signed deal in order to claim trade frictions (US-China trade deal: Winners and losers, 2020). This deal lead to create winners and losers and providing short as well as long term impact to business in negative manner. Trade between China and US lead to creates relationship among each other and lead to rise in economic in long run as Donald Trump put trade war behind and claims an achievement for future period of time and leads towards success and growth in effective and efficient manner. All Americans agree with Trump where China is trading unfairly and supporting trade as well as opposing tariffs. On other hand, China appears to set emerge signing agreement with following of terms and conditions which is offered early in process which includes loosening market accessing to US financial and firms of cars. These lead to get benefits from other countries and changing accordingly for positive results. 

This provides benefits to Australia to do trade between US and China in appropriate manner and leading towards rise in growth and success of business at competitive market in an effective and efficient manner (Romer, 2015). With this trade agreement, American companies as well as customers will be loser. New deal has tariff rates of $120billion worth of products and higher duties that affect another $360billion of Chinese products and more than $100billion of US exports to remain at place. There are losers of farmers as well as manufacturers due to trade agreement in negative manner. New deal has an aim to boost purchase of China in manufacturing, agriculture, services and energy from 2017 levels by earning $200 billion over two years in negative manner. According to Trump, it includes $50billion which is worth of agriculture products per year. This will provide benefits to Australia in both long term as well as short terms to improve their economic development of nations by raising their GDP and purchasing power of people in positive manner. 

(c) House prices rebound in the major Australian capital cite

The prices of houses in Australia are continued to rise in month of January with rise in spreading beyond markets of Sydney as well as Melbourne. Australia capital cities are setting records of home buyer which provide advantages at low interest rates which is new forecast shows. Sydney house prices are rising by 10% to whopping $1.25 million at end of year. Also there is rise by 8% in price of house at Melbourne which is recorded to be $970,000 for rising to reach median of $1million before end of year (House price rises spread beyond Sydney and Melbourne, but pace of growth slows, 2020). Prices are growing at highest peak and leads towards development of nation in an effective and efficient manner. With rise in year, prices are expected to rise by business in positive manner and leads towards success and growth in appropriate manner (Totry-Fakhoury & Alfasi, 2017)

It is also expected that national home prices are to increase by 10% in 2020 and further price growth will be moderate to 5%per annum (Suárez-Eiroa & & et. al., 2019). This will helps in long as well as short term development of nation in appropriate manner. In short term, they can earn maximum profits by selling of house and earning taxes from it. On other side, they will earn profit by selling of home and use that money in development of economy at great phase in effective and efficient manner. Therefore, it is very important for Australia home seller to fulfil requirements of customers in most appropriate manner and leads towards success and growth in effective way.

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