The growth of an economy is a factor of many macroeconomic variables like interest rates, inflation, taxes and other government policies. Australia economy is in the revival stage after the recession of 2008. In the revival stage, the expected growth rates are always higher, but due to recent events like euro zone debt crisis, austerity cuts, weak housing market and increased VAT led to the downgrading of the expectations for growth. The theory that explains this is the basics of economy. The rise in interest rates (euro zone debt crisis), increased tax rates and weak housing market leads to the lesser economic impacts which follows a vicious cycle which ultimately results in slower economic growth.
Private sector is considered as more efficient, quality driven and competitive as compared to the public sector. Therefore, the development of private sector leads to more employment opportunities, increased income levels and overall economic efficiency. The economic implications get stimulated by all the above factors which ultimately results in higher economic growth. Private sector development also promotes competition which transfers into greater efforts to be efficient by the players in the industry. Ultimately the same transfers into increased amount of economic growth.
Unemployment simply transfers into lower prices as people will not be willing to spend more due to unavailability of income. The producers have to offer the lower prices to sell the goods and services. It is explained by the Phillips Curve. Spare capacity leads to higher costs for manufacturing of goods and services. The increased use of factors of productions will decrease the unit costs for the producers. This saving in costs will be transferred to buyers in terms of lower prices. So, Mr. Andrew Sentance’s claim that unemployment and spare capacity will slow down price rises is very much true.
The prime reason given in the article is the increased level of youth unemployment. However, if we go dip into the matter, the reason for higher unemployment among youth is absence of new employment opportunities. Every year, the youth enters into the employment market. If the employment opportunities are there, the level of unemployment will remain same, but in the absence of employment opportunities (which is the case at present in Australia economy), the level of employment will increase significantly. The new entrants in the employment market have not been able to find a place for them in the economy, which resulted into the increased unemployment. The number of youth entering in the employment market is most of the times greater than the number of retiring people due to growth in the population.
The Australia economy is experiencing slower economics activities due to rising interest rates, weak housing market, increased taxes and austerity cuts. To stimulate the growth, the government should pump in more money in the market. This will slow down the interest rates and at the same time encourage new investments, initiatives and enterprises by the general public of the economy. This can be done by utilising various monetary policy tools. The money pumped in by the government will circulate in the market. This will lower the interest rates which will encourage more investments. The increased investments can also be supported by tax reliefs and austerity. All this will ultimately increase the level of economic activities and stimulate the economic growth. So, as an advisor to the government, I will recommend them to pump in money supply in the economy through monetary policy tools.
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