Economic Growth of UK, US and Australia for the Past 20 years (Term Paper Sample)

MACROECONOMICS ASSIGNMENT: MONEY AND FINANCE
EXAMINATION OF ECONOMIC GROWTH OF UK, US AND AUSTRARIA FOR THE PAST 20 YEARS EXPLAINING WHY ECONOMIC GROWTH MAY DIFFER ACROSS THE COUNTRIES
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INTRODUCTION
Economic growth has been reviewed widely in literature. It has been referred to addition, or increase in goods and services. Adding a time measure, economic (EG) of a country is seen as the increase in goods and services per head within a given period of time (Les and David 1995). The increased capacity of a country to make production has also been seen as EG. According to Robert (1999) EG is mainly driven by aggregate demand (AD) and aggregate supply (AS). Thus economists have come to a common agreement that EG is mainly driven by human capacity, physical capacity, natural resources endowment, and technological advances. Since EG has been seen to foster development, it has been stipulated and encoded through; employment levels of a country, inflation rate, interest rates, wage, retail market operations, real estate and property development, industrial production.
Different organisations including World Bank has been in the outlook to measuring EG of different countries, they have thus made use of real gross domestic product (GDP), gross national income (GNI), and other have used quarter GDP or GNI (Federico 2014).
Measurement of economic growth
EG is measure of increase of goods and services within a given period without consideration for inflation. Looking at it EG leads to increased business profits, as well as production capital. All countries thus are in the outlook for positive EG since as more goods are produce, there is more employment. Consequently, there is more disposable income and increased consumer purchasing power which leads to overall developments (Ian 2012).
Making use of GDP takes into account all countries production. All economic output of a country. Therefore, all that is produced for sale is include in measurement. The method however does not separate production mean for domestic or overseas sales (Stephen 2000). The methods includes exports as they are produced from within, and lessens imports as well as goods in transit and those used as raw material for manufacturing. Thus it looks at the end product.
Thus EG is seen in phases and thus well depicted within a period of time. EG is thus observed through the business cycle with estimates looking for expansionary EG. This is to ensure that the economy does not overheat. Consequently, no asset bubbles which may lead to rise of inflation. If people are selling more than they by the economy contract leading to a recession phase. If the recession persists, it leads to a depression. For instance in the 1978 crises, most economies were in a crises and experienced a period of depression.
COMPARING ECONOMIC GROWTH OF THE THREE COUNTRIES
For instance the US economy underwent a recession in 2008 (-8.4%) as measured by percentage change in GDP. In 2006, the economy contracted at the rate was 0.6%. In 2011, it has improved to 4.75 and thus the contrary has been experiencing contractions and growth over the years.
As shown in the graph below, US had been experiencing expansion since 2001 to around 2007, after the 2008 financial crises, it was hit and its economy contracted to a point of recession. Later it was able to regain momentum and has been growing on the other hand, during the same period, Australian had ha higher growth rate compared to US (Francis 2008). This is an indication that Australia has been expanding at a relatively higher rate. Australia, as seen from the non-smooth curve, has been experiencing contractions and expansions over the years without serious asset bubbles.
Comparing different countries and adding UK to the analysis, the figure below, shows growth rate between 1990-1998, and 1190-2006. As depicted in the figure, Australia had grown, or rather it has expanded within the period. From about an accumulated growth rate of 30% to that 70%. UK, has also improved over the same period. During 1990-1998, the accumulated growth was 20%, and during 1990-2006 period, growth was 47%. Similarly, US has also improved in its accumulated growth. This is from 30% to 655. Looking at the statistics comparatively, Australia has been expanding its economy at a fast rate compared to US and UK (Felly et.al 2012). UK has been the least developed among the three interns of economic development. It has been stipulated that US economy is driven by its high endowment in productive resources including capital, labour, entrepreneurship, and land. Using this measures of production, it is clear that Australia has abundance of the resources, with UK being less endowed.
In addition, countries that have doing well, they have been seen to maintain relatively smooth curves. Comparison in land areas, US has bigger land than Australia. In addition, US has an advantage since its soils are good and tillable, it temperatures are favourable for production, it has water large deposits of natural resources (Felly et.al 2012). However, Australian economy is moving faster which could be attributed by its high human capacity, as well as technological innovation. Long period experience shown below, UK has been the worst in terms of growth and Australia has been performing well.
Source: IMF
As shown in the figure below, from 2007 to 2014, Australia economy has been expanding. The country was not much hit by the 2008 crises, thus it was able to recover very fast. As shown in figure 1, the country only contracted unlike US that went through a recession which is at times difficult to move out of. Looking at US curve, after 2007-2008, in 2009 it underwent through a recession from which it bounced back to 2010, during 2011, the economy was going through contractions, and at around 2012 stabilised and has seen then been improving. UK on the other hand underwent through a recession like US during the 2007 crises. It was able to bounce back but with lesser growth compared to US. At around 2011, when there was a price crises, it was affected through went through a contraction, later from 2012, it was able to stabilise and has since been growing (Felly et.al 2012).
Why economic growth differ in the countries
From the analysis it is clear that Australia economic growth rate is higher compared to US and UK. US is second with UK being third. Some of the things that would be making Australia a lead is with respect to its population. Since EG is measured by production per head, countries with high populations and especially within the working group. As shown in the figure below, Australia has the highest population among the three counties and its population has been growing at a faster rate (1.5%), compared to US at 0.6% and UK at 0.7%.
It has been stipulated that the US economy is likely to have possible declines in economic growth due to the employment waves that has been facing the country. It has been having low employment rates which have been declining over the years (John and Anthony 2016). Compared to Australia, it has a low employment rate. In addition, Australia has better employment policies and terms which makes the disposable income increase consumer’s purchasing power.
There are differences in growth between the three countries. This may not only be stipulated by population growth differences but may also be caused by other indicators including; employment levels of a country, inflation rate, interest rates, wage, retail market operations, real estate and property development, industrial production.
As shown in the figure below, there are employment differentials in the three countries. EG is measured by how well a country is operating with respect to employment. Countries that have high employment rates, have more people into production and thus fuelling their economic development. Industrialisation is also possible, increased disposable income, and consumer purchasing power (John and Anthony 2016). From the table UK has higher employment growth compared to the other with Australia having the lowest. However, comparing the three in terms of their wages, Australia has best wages which could explain their low employment rate.
Source: World Bank
From the figure below, the minimum wage given in Australia is high, K has a low minimum wage which could explain its high employment capacity.Employment and wage determine difference in economic development for the three countries. It could well explain why Australia has the highest growth and UK has the lowest.
Form the figure below, Australia is leading with high interest rates among the three countries. High interest rates are an indication of high economic growth as the returns on investment are high (John and Anthony 2016). From the figure, rates in Australia are about 48%, US is 0.3%, and UK 0.15%.
Source: World Bank
Australia thus leads in rates with a high margin, thus making investment in the country leaps high which gives it a comparative advantage in development.
A low inflation is an indication that prices rise slowly. It has been stipulated that economies that grow very fast, prises are expected to be high, prices to go up, and an upward movement of wages. In most developed countries, high inflation rates and prices are self-fulfilling as wages rise to cover the gap. As shown in the figure below, Australia has high inflation (4%), followed by UK (0.8%), and finally US at 0.7%.
Source: IMF
From the analysis we have been able to clearly see that economic growth for the different countries is different. The difference is brought about by diff...