Assessment Details and Submission Guidelines GA/MA503-Economics School School of Business Course Name Graduate Diploma of Accounting/Master of Professional Accounting Unit Code GA/MA503 Unit Title...

I. Objective of the study:
The key objective of this study is to conduct an economic analysis among four different countries. The countries we have selected are Australia, Kenya, India and Germany. The primary purpose is to examine the current state of the economy and their respective economic policies. The report further identifies one macroeconomic issue for respective countries.
II. The data of Macroeconomic indicators:
Real GDP growth rate:
Real GDP is the major indicator to understand the economic health of an economy. We have collected the data for GDP growth rate for four said countries for the last 25 years (1994-2018). The data are collected from the official website of The World Bank and Fred. The data is collected and shown in the attached excel. (TheWorldBank, 2018)
Inflation rate:
Inflation fate is another important indicator that can influence many other variables. For example, inflation rate has a significant impact on the inflation rate. The data for inflation rate for all the four countries like Australia, Kenya, India and Germany have collected from the website of The World Bank. The data for inflation rate is plotted in the following chart:
Unemployment rate:
Unemployment rate is a major economic indicator that has massive implications on the macroeconomic stability of the economy. Any economic fluctuations of economic shock, both negative and positive are reflected in their labour market data. Unemployment rate data is unavailable for some years in The world bank Website. Thus, we have collected the unemployment data From Fred website and shown in the attached excel. (FRED, 2018)
III. State of business cycle based on current data:
Let us analyse the current state of business cycle for each country in our study based on the historical data that we have collected from The World bank and Fred database.
Kenya:
Business cycles have four stages that includes expansion, peak, recession and trough. Almost all the economies have to experience the fluctuations of business cycle with varying magnitude and length. (AMADEO, 2018).GDP growth rate for Kenya remain consistent for last few years. Agriculture contributes highest almost 24% of Kenyan GDP. The macroeconomic indicators provide clear indication that the economy is just in their recovery phase of the business cycle. The second largest contributor to GDP is manufacturing sector that contribute almost 11% of GDP according to 2014 KNBS Statistics. (Asamba, 2017)
Kenya is the fastest growing economy in Africa. According to World Bank, the growth rate for Kenya in 2017 is estimated as 4.88544448 %. Though the poverty and the unemployment rate are stubbornly high, Kenya is growing at an impressive rate. Kenya is looking forward to become an upper middle-income country with its appropriate economic policies by the year 2030. (Tubei, 2018)
Despite the higher growth rate, Kenya is suffering with very high youth unemployment problem. The huge figures of youth unemployment rate pose a massive threat to the country to become the economic powerhouse in East Africa. High unemployment rate is often associated with high population growth rate. But Kenya, though has the highest youth unemployment rate, the population rate is found to be lowest in East Africa. At the bottom line, Kenya is in the early stages of expansion in the business cycle. It is operating below the potential level. The government has to do a lot to improve the labour market conditions. The economy is expected to grow smoothly as the world economy improves and maintain a solid growth rate. (Eduardo Zepeda)
India:
International Monetary Fund (IMF) has reconfirmed the fact that India will be the largest growing economy in the world in 2018 with a growth rate of 7.4% . the growth rate is even predicted to increase to 7.8% in 2019. India is recovering from the temporal shock caused by the effects of demonetisation and introduction of Goods and Service tax. As far as the business cycle is concerned the economy is at the boom phase – currently it is growing above its potential level. The rapid pace of economic growth is largely contributed by the major economic reforms and suitable fiscal measures implemented by the government. (livemint, 2018)
Germany:
The historical data for GDP growth rate has shown how German economy has experienced fluctuations in business cycles over the period of last twenty years. During the late 1990s and early 2000 German was called as the sick man of Europe. But after the Great Recession, German has become the economic superstar. German has the fourth largest GDP in the world, according to statistics of 2014. In the mid-2000s, the labour market reforms, so called ‘Hartz reforms’ has taken place. The labour market reforms have allowed to react with flexibility in case of different economic situations. This unique characteristic helps German economy to achieve economic success during then las decade. (Christian Dustmann, 2018)
German is currently at the boom phase of the business cycles. The economy is currently growing above the potential level. The indicators suggest that the output growth, employment growth and the wage growth remain strong. Rapid growth rate has fuelled the fear of overheating economy. The economy is growing above the potential level for the last few years. (CLEMENTS, 2017)
Germany is now booming with above potential level. This clearly indicates that the economic capacity in Germany is overutilized. It has significantly enhanced the risk of overheating. Without the intervention of cooling down measures, the economy may roll over into inflationary cycles. Germany is one of the major critics of ECB; s bond buying program. Low interest rate for a longer period of time ay worsened the situation. (Hanschke, 2017)
Australia:
The current data of real GDO growth rate for Australia suggest that the economy is at the expansionary phase of the business cycle but yet to reach its potential level. Australia is blessed with vast natural resources that has significantly contributed to its dramatic economic growth. Australia has observed uninterrupted economic growth for last 26 years without any recession. Australia has entered in economic recession last time during 1991. During this period, the economy has managed to weather out Asian financial crisis, dot com bubble even the Global financial crisis. The scars for Global financial crisis are minimal for Australia where as all other peer economies in the developed world was hardly hit by the global economic meltdown. The diversified nature of Australian economy, its openness to international trade, China’s heavy demand for Australia’s good and services, the miming investment boom, huge export revenue from commodity exports to emerging economies of Asia and successful economic policies are some of the key contributors for Australia’s unprecedented economic success for a substantial period of time. Despite the phenomenal economic success, the growth rate remains low for Australia. It clearly indicates that the capacity of the economy is underutilized.
IV. The current state of business cycle can be shown with the help of AD-AS diagram:
Australia: LRAS
Price level
..SRAS
A
AD
Real output
YF
Y1
Australia is currently operating just below the long run output. The economy is producing at the level of Y1 where as the full employment level of output is YF.
Germany
SRAS
LRAS
Price level
..
A
AD’
AD
Y1
YF
Real output
Germany is operating above the potential level. The actual output is Y1 where as the potential output is YF.
India: SRAS
LRAS
Price level
..
A
AD
Y1
YF
Real output
India is operating above the potential level. The actual output is Y1 where as the potential output is YF.
Kenya: LRAS
Price level
..SRAS
A
AD
Real output
YF
Y1
Kenya is operating below the potential level with a significant slack in the economy. The actual output is Y1 where as the full employment level is YF
V. Critical macroeconomic issue in the current situation of respective country:
Kenya:
High level of unemployment is one of the major macroeconomic challenge for Kenya in future. According to recent report by HDI, Kenya has recorded an unemployment rate of 39% in 2017. Youth unemployment rate in Kenya is stubbornly high. The other countries in east Africa like Uganda, Rwanda, Ethiopia, and Tanzania have the lower unemployment rate than Kenya. The high youth unemployment rate is result of downsize of many companies due to harsh economic environment. (Asamba, 2017)
Youth unemployment rate is substantially higher than adult rate and particularly high in cities. The rural youth unemployment rate ranges between 20-25% where as the urban unemployment ranges between 35 to 60%. The high urban unemployment is the result of rural urban migration that has affected the urban job market. For the last four decades successive governments have prioritized the employment creation as the core of the policy. It is not only to create the salaried or wage jobs but also to increase the productivity and earnings. Although various policy initiatives have been implemented to address the major economic challenge, the employment situation remains difficult. It implies that policies are inadequate to tackle the problem. (Eduardo Zepeda)
India:
High inflation is one...