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Introduction

The economic growth of a country depends on the performance of macroeconomic indicators like real GDP, interest rates, unemployment rate, inflation, exchange rate and trade. The real GDP is the foremost important parameter of country’s growth. Gross Domestic Product is calculated on the basis of the overall products and services being produced by a nation within a year in terms of their market value. The major components of GDP are consumption, investment, government expenditures and net exports (Easterly and Levine, R., 2001). The interest rate prevailing in the country determines the rate of savings and investment. A higher rate of interest raises the level savings and hence, will lead to fall in consumption and GDP. The unemployment rate in a country indicates the well being of the economy by measuring the number of involuntary unemployed persons to the total labour force of the economy. The inflation accounts for the increase in the general price level which is known as Consumer Price Index and it can lead to serious impacts on the consumption pattern in the economy (López-Villavicencio and Mignon, 2011). The exchange rate of a country is the value of domestic currency in terms of a foreign currency. It is a major factor in determining a country’s trade position in the global market.The earnings from trade also influences the real GDP of a country, it is one of the component of GDP. This study shows the relation between the GDP and its indictors on the economic performance of the country.

1.0. Data Analysis of Macro-economic Indicators of USA and Australia

The data of real per capita growth rate of GDP of USA and Australia and its major indicators has been analysed from the year 1990 to 2014 to make a comparative study of the two economies. The cross country data has been first shown in a table and then it is represented in a graph to understand the performance gap of both the countries in that parameter (Please refer to Appendix).

The following graphs represent the trends in the GDP growth rate and the macroeconomic indicators of both countries over time.

Figure 1: GDP Growth Rate of Australia and USA
(Source: Worldbank.org, 2015)

The above graph shows both the countries have nearly same pattern of growth rate till 2000. After 2000, it has been noticed that Australia experienced higher growth rate compared to USA. Australia experienced positive growth rate throughout the entire period with minor fluctuations, whereas USA despite being the most developed country experienced negative growth rate in the years 2008 and in 2009 due to global recession during this period.

The following section shows the comparative analysis of both the countries in terms of their major macroeconomic indicators of economic growth.

Figure 2: Real Interest Rates of Australia and USA
(Source: Worldbank.org, 2015)

The real rate of interest determines the country’s level of consumption and savings that affects the rate of growth of real GDP of the country (Neumeyer and Perri, 2005). The above graph shows that real interest rate fluctuations of Australia and USA since 1990. Interest rate in Australia shows a declining trend till 2010 and there was a sudden upsurge in the real interest rate in 2011 due to tight monetary policy of Reserve Bank of Australia. Such policy induced the people to save more that leads to fall in consumption and GDP. Compared to Australia, interest rates were lower in USA and it was reduced to near about 0 after 2008. The Federal Reserve followed such an easy monetary policy after the global recession so as to encourage more borrowing by the investors and increase production of the economy.

Figure 3: Unemployment Rate of Australia and USA
(Source: Worldbank.org, 2015)

The above graph of unemployment rate of USA and Australia clearly indicates that that later nation has been more successful in reducing its unemployment rate after 1992. Since then, there was continuous fall in its rate of unemployment but it increased after 2008 which was due to downturn in global market owing to recession. As economic activities slowed down and production fell, the producers were left with no options but to reduce their employment.

Though the rate of unemployment in USA was lower than Australia, but it followed a similar trend like Australia where unemployment rate fell down significantly after 1992.  Afterwards due to contraction of the economic activities as a result of global recession unemployment rate increased in the year 2008.

 

Figure 4: Real Effective Exchange Rate of Australia and USA
(Source: Worldbank.org, 2015)

The real effective exchange rate of both the countries was high over all the years and it was higher in USA than Australia. As the countries imported foreign goods to a large extent, the real exchange rate was high due to the prevalence of excess demand for foreign currencies. This implies capital inflows were less than the outflows in USA and Australia.


Figure 4: Net Exports (BOP) of Australia and USA
(Source: Worldbank.org, 2015)

The Balance of Payment (BOP) situation of a country can be determined from its net exports. The data of net exports were unavailable for both the years before 2005. Hence, the above graph represents the BOP or net exports since 2005.Net exports of USA was much higher than Australia which is because of USA’s superior position in the global market in terms of technological advancement. The countries across the world imported technology and advanced capital equipments from USA which raised their net exports and maintained a positive BOP situation. Australia has also experienced positive BOP, but its net exports were much lower than USA because of its higher imports and lower exports. Australia mainly exported agricultural goods and natural resources like coal and oil, whereas it imported costly products and services like manufacturing, transport equipments and technology in large amount (Lederman, and Malone, 2003).

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