MAE203 The Global Economy - Assignment Solution

Question 1

Figure 4 reveals the GDP (gross domestic production) growth rate of Australia, Greece and UK. Overall the Greek economy has proven to be the most unstable economy in which from 2008 till 2013 instead of growth there was a decrease in GDP. In 2009 the growth went in negative to as low as -9%. Even UK went to negative growth during 2008 and 2009, while only the Australian economy has shown consistency and performed its best at almost 4% in 2012 and was stable otherwise. The reason why UK and Greece were hit with economic recessions was the great recession referring to the economic downturn from 2008 till 2013 as a result of Global credit crunch in 2007/8 (Pettinger, 2017). Greece, however took longer to recover due to strict austerity measures and the risk of defaulting on its debt. In 2009 in Greece the 15% budget deficit and the risk of default decreased the level of confidence of people in the economy. The situation was normalised for Greece when different European and private investor lend Greece as much as 294.7 billion euros to help Greece exit the crisis which explains the recovery after 2014 (Amadeo, 2018).  Australian economy survived the recession wave as the Australian government wasn’t in vulnerable position. The finance minister on sensing the recession reassured its people and as a result government’s financial position strengthened its investors, business class and financial institutes thereby, reducing chances of economic downturn (Alexander, 2013).

Figure 5 shows the unemployment in UK, Greece and Australia, overall, during 2013 the unemployment was proven to be highest for all economies. Greece had the highest unemployment over the decade probably due to falling GDP (see figure 4) and the Greece financial crisis discussed above. With falling GDP, unemployment rises as there is less production due to falling aggregate demand and the labour has derived demand thus as a result there is less need to employ labours for production. Australia again has been the most stable with an average of a 5% unemployment overall. While, UK did have its unemployment rising from 2008 till 2013 probably due to the great recession, however thereafter after the end of recession the unemployment for UK started falling. 

The inflation chart in Figure 6 reveals that Greece is the most unstable in terms of its prices, before 2013 it had mild inflation while from 2013 till 2016 Greece went under deflation. Deflation for any economy is highly unfavourable and this can probably be due to extremely low demands during that period due to loss of income with lower GDP (see figure 4) and high unemployment which was rising (see figure 5). UK and Australia overall had mild inflation (i.e. below 5%), only in 2015, UK showed almost 0 inflation at 0.2% which was recorded as lowest over half century and this was due to the fall in oil prices which didn’t put pressure on manufactures to raise price or utilities bills to raise (Cadman, 2016).