Interpreting Economic Data

Topics: Inflation, Economics, Macroeconomics Pages: 10 (2341 words) Published: August 29, 2013


Assessment Task Two:

Interpreting Economic Data

Executive Summary

The purpose of this study is to provide a brief analysis of some key economic measures pertaining to the health of the Australian economy. With the global economic outlook still very much in a state of flux following the GFC it is vitally important for the Australian Government and Reserve Bank of Australia (RBA) to closely monitor and control the ongoing state of the Australian economy relative to the rest of the economic world.

The focus of this analysis will be on Australia’s central bank – The RBA – and the ways in which the RBA employs Monetary Policy to keep the Australian economy stable, growing, and in an overall state of good health.

Specifically we will focus our attention on how the RBA has been able to utilize Monetary Policy to:

✓ Maintain inflation and pricing at desired target levels. ✓ Increase the ‘money supply’ to help stimulate economic activity. ✓ Use interest rate adjustments to create appropriate levels of investment (I) and consumption (C). ✓ Counteract unemployment through expansionary policy implementation. ✓ Stimulate overall economic activity to increase aggregate demand (AD).

The conclusion of this report will show that the RBA (and the Australian Government) have been very effective in utilising monetary (and fiscal) policy to maintain the health of the Australian economy – relative to other comparable developed economies.

Table of Contents
Executive Summary2
Section 1 – Real GDP Growth:5
Section 2 – RBA Monetary Policy:6
Section 3 – Inflation:8
Section 4 – Australia’s Economy:9

Recap and Conclusion:12


Section 1 of this report will begin by analysing the current state of the Australian economy with particular respect to ‘Real” GDP. Definitions on ‘Real’ GPD will be provided, along with the method by which ‘Real’ GDP is calculated.

Section 2 – will focus on a detailed explanation of monetary policy, and the ways in which the RBA have utilized the tool of money supply policy (financial aggregates) to impact the Australian economy. Most of the data for this section comes directly from the RBA website.

Section 3 – investigates inflation and the impact that price growth can have on consumer spending. We will also outline the relationship between ‘Nominal’ and ‘Real’ inflation, and the consumer price index (CPI), and also provide the basis upon which CPI is calculated.

Section 4 – will focus more broadly on the current state of the Australian economy and how each of the economic measures relates to our future outlook.

Recap and Conclusion - the final element of this report will summarise the findings of the analysis.

Current and relevant data has been gathered from various sources to support all claims made.

Section 1 – Real GDP Growth:

‘Real’ GDP is a measure of the economic output of a country taking into account the effects of inflation.

In order to calculate ‘Real’ GDP we first have to establish ‘nominal’ GDP for a given period. Nominal GDP is a calculation of total output for a given year, and is based on the prevailing prices during the year of production. ‘Real’ GDP is what nominal GDP would have been if there was no price changes from the base year. Having established ‘nominal’ GDP we can then use a deflator (measurement of inflation since the base year) to calculate the ‘Real’ GDP. That is, to ascertain ‘real’ GDP, we are required to adjust ‘nominal’ GDP so that it reflects only changes in output, and not the changes in price. Real’ GDP is also referred to as constant-dollar GDP (Layton, Robinson & Tucker...

References: • Layton, Robinson & Tucker, - ‘Economics for Today (Fourth Edition). 2012
• Institute of Chartered Accountants Australia, ‘A Plan for Australia’s Economic Prosperity’, April 13.
• JPMorgan Asset Management – ‘A Guide to the Markets’, June 30th 2013
• Australian Bureau of Statistics –
• Reserve Bank of Australia –
• Trading Economics –
• Index Mundi –
There have been 14 interest rate cuts since Sept 2008 (post GFC) gradually taking the ‘cash rate’ from a high watermark of 7% down to 2.5%. This is clear evidence of expansionary monetary policy.
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