Longest Period Economic Growth Developed -Myassignmenthelp.Com

Question: Discuss About The Longest Period Economic Growth Developed? Answer: Introduction The economic performance of all countries in the world is measured by using some universal economic indicators. One of the major economic indicator is the Gross Domestic Product (GDP). GDP is the value of all goods a country produces within it boarders in monetary terms (Tribe, 2011). The GDP level for most countries is estimated on a quarterly basis. The level varies from one quarter to the other; any improvement from the previous estimate is an indicator that there is expansion in the countrys production level which is desirable for any given economy. This paper is mainly concentrated on comparing and contrasting the differences in economic performance between US and Australia. The reason for the differentials in performance will be identified and explained in actual figures. The data to be used is for the period starting from 2012 to 2016 (five years). Since GDP is a primary indicator, we shall start the research by identifying the various accounting methods used in its computation. Whereas there are several methods of GDP accounting we shall only rely mostly on the expenditure approach. According to the US Bureau of Statistics, the source for expenditure data is reliable and has an advantage of data integrity (Mathews, 2012). Other realistic arguments such as the PPF and business cycles concept will be employed in the research. Data to be used will be obtained from various government institutions. GDP Accounting Methods There are three methods that are globally accepted for the estimation of GDP and are alleged to give similar estimates. One of them is the expenditure method where it has four components; investments, consumption, government spending and net exports. When this components are summed up, they give nominal GDP which is further adjusted for changes in inflation to make it real GDP. This method is the most commonly used with consumer spending being the dominant component, followed by government spending, business investment and lastly the net export component. The second method is the production approach also referred to as the net product method or Value added method. This method originates from the definition of GDP total monetary value of all goods and services; this gives the gross value (World Bank, 2013). The next step is to subtract the intermediate consumption from this gross value. Intermediate consumption includes; cost of materials used in producing the final output, supplies and services. The last method is the income approach method which assumes that all incomes generated by all goods and services produced by an economy should be equal to all the expenditures in that economy (Ross, 2018). The components for this approach include; labor income (wages, Salaries, and fringe benefits. government taxes for Social Security and unemployment insurance are also included); Rental income (Property income received by households, imputed rent, Royalties from patents, assets and copyrights); interest income (Income the households receive from lending their money to business firms and corporations. Interest payments by Government and household are not included); lastly, accounting profit (What is left with firms after paying their rent, employee compensation and interest on debt). Business Cycles According to Amadeo (2018), there are 3 most important indicators that tell the business cycle phase the country is operating at; growth rate of GDP, Unemployment rate and inflation. These three indicators should be compared from a year to another to determine the economic growth and thus to help in the implementation of the appropriate policies. Positive growth indicates an expansion phase whereas negative growth indicates a recession (Msmf.com, 2017). Since the great recession of 2007-09, the US has been on the recovery process. US labor productivity, growth of output and hours worked The graph above provided by the US bureau of statistics shows that the US economy has not fully recovered from the impacts of the global recession as it is still operating below the average cycle (Sprague, 2017). The table below shows that the US economy has been on an expansion phase for the five years under analysis; growth rate is positive, unemployment low and inflation rate also low. Table: US Business cycles from 2012-2016 Year GDP Growth Unemployment Rate Inflation Business Cycle Phase 2012 2.2% 7.8% 1.7% Expansion. 2013 1.7% 6.7% 1.5% Expansion. 2014 2.6% 5.6% 0.8% Expansion. 2015 2.9% 5.0% 0.7% Low oil prices. Strong dollar.Fed raised rate. 2016 1.5% 4.7% 2.1% Year GDP Growth Unemployment Rate Inflation Business Cycle Phase 2012 3.6% 5.2% 1.8% Expansion. 2013 2.1% 5.7% 2.5% Expansion. 2014 2.8% 6.1% 2.5% Expansion. 2015 2.4% 6.1% 1.5% Expansion. 2016 2.5% 5.7% 1.3% Expansion. Source: FocusEconomics.com (2018) According to Tang (2017), Australia has been on the expansion phase for many years. PPF Concept The United States economic performance is better than Australian when considering the production possibility frontier (PPF). According to Perera (2016), individuals have unlimited needs and wants and thus the resources available are not enough to meet these needs and wants and thus the economy has to make the right choices to maximize their production of goods and services. The United States is a more developed country compared to Australia, it has more factor resources, advanced technology and increased productivity that enables it to produce close to the PPF. Points A, B and C are along the PPF and are the efficient points. It can be argued that no country have efficient utilization of available resources since that country should be operating at full employment level. Since the employment level in US is lower than that of Australia, the US can be said to be closer to the efficient level than Australia as positioned on the above graph. The US can thus be considered to have more resources than Australia and is better employing them to increase productivity. GDP of the United States and Australia in comparison GDP is always provided in the National currency; Australian Dollar for Australia and US Dollar for the US. However, from the data I collected from the IMF, I converted the Australian Dollars to US dollars at the current exchange rate in order to get a clear comparison; both the US and Australian GDP in the graph above are in Billions of US Dollar. As it can be observed from the graph, the US GDP is way higher in comparison to that of Australia. The trend for the US GDP is also heading upwards whereas that of Australia in nearly horizontal. The upward trend is indicating a growth in economic performance during the 5 year period for the US and a sluggish growth for Australia. This GDP data is clearly indicating that the production of goods and services in the US in monetary value is much greater than that of Australia. GDP per capital is estimated at constant prices in the national currency units; however, the units of Australian dollars have been converted to US dollars. From the graph above, one can easily note that the trend for GDP per capital for both countries looks alike and is heading upwards. This indicates that it is growing for both countries. However, the units for the US GDP per Capita are much greater than for Australia. This can also be concluded that the US is performing better than Australia in terms of GDP per capita. How the components of GDP has impacted the GDP of both the US and Australia Since similar components are used in the computation of GDP, any increment in any of the component leads to an increment in GDP. On the other hand, when any of the components shrink, GDP also falls. For instance, the net export for the US is very poor compared to Australia according to the IMF data. This means that the net export has very little contribution to the US GDP than for Australia. Since the unemployment rate in the US is lower than in Asutralia, it means that most people have incomes to spend on goods and services; this explains the big contribution of consumption component in US GDP. The expansion of output and increased demand by households since they have incomes has contributed much to US GDP than for Australia since it has led to increased business investments on expansion. When unemployment rate is low, the government revenues rise and this explains why the US government is able to spend more than Australia. Comparison of Economic Growth between US and Australia From the above graph, it can be concluded that the US economy growth rate was lower than that of Australia despite the better performance in other indicators. Both countries were in an expansion phase during this period because their GDP growth rate was positive for all the years. From the data obtained from the IMF, both the US and Australian GDP rose from 2012 2016. The inflation rate for both countries also rose during this period. The major difference was on the unemployment rate, while it was on a falling trend for the US, it was on a rising trend for the Australian economy. In summary, it can be concluded that the US economys economic performance from 2012 2016 was better than that of Australia. References Amadeo, K. (2018). U.S. GDP Growth Rate by Year Compared to Inflation and Unemployment: What Really Influenced U.S. Growth Through History? [Online] The Balance. Available at: https://www.thebalance.com/u-s-gdp-growth-3306008 [Accessed 26 Jan. 2018]. FocusEconomics.com (2018). Australia Economic Outlook. [Online] FocusEconomics.com. Available at: https://www.focus-economics.com/countries/australia [Accessed 26 Jan. 2018]. Imf.org (2018). Report for Selected Countries and Subjects. [Online] Imf.org. Available at: https://www.imf.org/external/pubs/ft/weo/2016/02/weodata/weorept.aspx?pr.x=66pr.y=9sy=2012ey=2016scsm=1ssd=1sort=countryds=.br=1c=193%2C111s=NGDP_R%2CNGDPRPC%2CNID_NGDP%2CPCPIPCH%2CTM_RPCH%2CTX_RPCH%2CLUR%2CGGR%2CBCAgrp=0a= [Accessed 24 Jan. 2018]. Mathews, R. (2012). GDP and the US Economy: 3 Ways to Measure Economic Production. [Online] Mic.com. Available at: https://mic.com/articles/14943/gdp-and-the-us-economy-3-ways-to-measure-economic-production#.caMGFi6qL [Accessed 25 Jan. 2018]. Msmf.com (2017). The U.S. Business Cycle: Where We Are and What Does It Mean? [Online] Msmf.com. Available at: https://www.msmf.com/blog/the-u-s-business-cycle-where-are-we-and-what-does-it-mean [Accessed 26 Jan. 2018]. Perera, G. (2016). What is PPF in Economics? [Online] Pediaa.Com. Available at: https://pediaa.com/what-is-ppf-in-economics/ [Accessed 25 Jan. 2018]. Ross, S. (2018). How do you calculate GDP with the Income Approach? [Online] Investopedia. Available at: https://www.investopedia.com/ask/answers/070715/how-do-you-calculate-gdp-income-approach.asp [Accessed 25 Jan. 2018]. Sprague, S. (2017). Below trend: the U.S. productivity slowdown since the Great Recession. [Online] Bls.gov. Available at: https://www.bls.gov/opub/btn/volume-6/below-trend-the-us-productivity-slowdown-since-the-great-recession.htm [Accessed 26 Jan. 2018]. Tang, E. (2017). Australia has experienced the longest period of economic growth in the developed world. [Online] Austrade.gov.au. Available at: https://www.austrade.gov.au/news/economic-analysis/australia-has-experienced-the-longest-economic-growth-among-major-developed-world [Accessed 26 Jan. 2018]. Tribe, J. (2011). The Economics of Recreation, Leisure and Tourism. Routledge. World Bank (2013). Measuring the real size of the world economy: the framework, methodology, and results of the International Comparison Program--ICP. Washington, DC: World Bank