Putting Capita Income Back Into Trade Theory -Myassignmenthelp.Com

Question: Discuss About The Putting Capita Income Back Into Trade Theory? Answer: Introduction The present report provides an overview about the comparison of GDP, GDP per capita and economic growth between the two countries. The two countries selected for this study are Australia and US. Gross domestic product (GDP) refers to the monetary value of the final products and services that is produced within the geographical boundary of the nation for the specific time period. GDP has huge significance as it is considered as one of the vital indicators of economic performance and standard of living of a particular nation (Gillespie, 2014). The GDP of a country fluctuates owing to business cycle while various macroeconomic indicators including inflation rate, unemployment rate varies owing to fluctuation in GDP growth rate. Economic growth indicates rise in inflation adjusted value of products and service manufactured by the nation and is conventionally measured in terms of real GDP. Moreover, economic growth rate of the country is basically compared using ratio of GDP to the per ca pita income. The differences and similarities between these selected nations have been analyzed in this report using PPF (Production Possibility Frontier) concept, GDP accounting method and the business cycles. GDP, GDP Per capita and economic growth rate of Australia and US during 2012-2016 Economic growth The economy of Australia has experienced unremitting growth and featured with low inflation as well as unemployment rate, low public debt and stable financial system during the year 2012-2016. During this period, this nation had experienced high economic growth with respect to the last 20 years and hence has been averaged to 3.5% per year. This nation had remained unaffected by GFC (global financial crisis) since the banking system was strong and the inflation rate was under control. The economic growth of this nation during this period has been mainly due to rise in terms of trade (TOT), diverse natural resources attracting increased levels of FDI (foreign direct investment) and minimal restrictions on the imports of products and services. In addition, this procedure of opening up also increased total productivity, which in turn stimulated this nations economic growth (Lewis, 2013). However, this made the nation highly flexible and dynamic. During this period 2012-2016, the economic growth of US measured in terms of real GDP grew by near about 2% -3%. In the year 2012, this nation had created more than 2.17 million jobs, the inflation rate had also remained low at 1.9% and even the value of dollar had also remained low (Summers, 2014). In fact, the Federal Reserve had also kept the interest rate low, which in turn increased the flexibility of the US firms. However, all these indicators reflect that the economic growth of US had increased during this period. GDP The GDP of US refers to the products and services manufactured within the boundary despite whether the organization is international or the individual offering the service is their citizen (Jorgenson, Gollop Fraumeni, 2016). The GDP of US during the period 2012-2016 has reflected continuous increase thereby reaching the highest in 2016 at $18624.48 USD billion. Although the GDP of this nation lowered during the period 2008-2009 owing to financial crisis, it recovered during the expansion phase if business cycle. In the year 2016, this economy had been recorded as the biggest trading country and the second largest producer in the globe. On the contrary, though Australia has been recorded for the uninterrupted GDP growth rate in the longest run around the globe, the GDP of this country reflected slight fluctuation from the year 2012 to 2016, reaching all time high in the year 2016 at $1567.18 USD billion. Moreover, this economy had shown huge resilience to GFC (global financial crisis ) and was one of the developed nations whose GDP recorded positive in 2009. In 2016, this country was ranked as the 14th biggest economy as measured by nominal GDP, 20th largest in terms of PPP- adjusted GDP and 25th biggest as accounted by exporter as well as importer of goods. The GDP of Australia and the US has been shown in the diagram below: GDP Per Capita GDP per capita is another indicator that helps in analyzing the economic health of the countries. GDP per capita signifies the measurement of total output of the nation that is evaluated by the ratio of GDP to the total number of persons living in the country (Markuse, 2013). This macroeconomic indicator is mainly useful for comparing the total productivity between the two countries. The GDP per capita in US highlights increasing trend during the period 2012-2016, the highest being recorded at 52194.9 US dollars in the year 2016. Moreover, GDP per capita in Australia has also reflected rising trend from 2012 to 2016, the highest being recorded at 55670.9 dollar. This reflects that the Australian workers were more productive as compared to the workers in US in account of output per hour . This productivity gap has the basic determinant of the income gap between the US and Australia (Rios, McConnell Brue, 2013). The main reason behind these productivity gap are relative factor intens ities, product differences, policies in labor market and other divergence between geographic as well as historical context. Relative factor intensities indicate the average human capital level and regulations in labor market. As labor is the only input for production, data reflects that labor productivity in US was lower than that of Australia since US used more labor intensive methods of production. Moreover, advancement of new technology, competition and rationalization also led to rise in productivity level in Australia as compared to US (McLean, 2012). The productivity level in US declined owing to great recession as it adversely affected their labor market while the labor market of Australia was not least affected by this recession. Thus, although US has started to recover from recessionary period, its productivity was low with respect to Australia that is measured in terms of GDP per capita. Production possibility Frontier PPF also known as production possibility frontier usually signifies the point at which the nations economy has been efficiently manufacturing their products and services and thus allocating resources in best possible way. Economic growth is also defined as the rise in total output by the economy if it uses all scarce resources. However, rise in nations output is mainly shown by outward shift in the PPF (Sloman, Norris Garrett, 2013) . This outward shift means the nation has increased their total capacity in producing products. As the quantity of labor is another factor that contributes to economic growth, raise in total population shifts the PPF curve outwards. Both the US and Australia has changed their immigration policy in order to increase their labor force, which shifts the PPF curve outward. Therefore, this increase in labor force increases the human capital, which in contributes to productive economic activities. Hence, the PPF curve of both these nations reflects high econom ic growth. GDP accounting methods There three various ways of accounting GDP, which includes- income approach, production approach and expenditure approach. In case of Australia, income, production and expenditure estimates are usually integrated within the annual balanced supply. The reason for using national accounts is to provide time series of production aggregates as well as expenditure that are free of impact of price change (Taussig, 2013). The ABS ( Australian Bureau of Statistics) derived estimation of constant price as means of estimating variation in volume of aggregates. Moreover, they also measure the GDP value in every period by applying equal unit prices. On the other hand, in US the most important method used in estimating GDP is the expenditure method. In this method, the GDP is calculated by the summation of total consumption, government expenditure, investment and net exports. Business cycles Business cycle also known as economic cycle refers to the downward as well as upward movement of GDP around their long term trend in growth. It is usually measured by taking into account real GDP growth rate. There are mainly five phases if business cycle such as- expansion, peak, recession, trough and recovery (Gal, 2015). In expansion phase, the economy grows at increasing rate. At peak, the economy increases more than 3%. At recession, the economy slows down but does not become negative. At Trough, the economic moves into recession and at last in recovery stage the economy again increases. The government of the respective nation manages the business cycle. The policymakers of these two nations implements fiscal as well as monetary policies for influencing the economy. During this period 2012-2016, both the US and the Australian economy existed in expansion phase, where the economy grows at stable rate. Conclusion The above report reflects that the US economy has slightly better economic health as compared to the Australia during this period 2012-2016. Although the GDP and economic growth of US reflects better economic performance than Australia during this period, the GDP per capita highlights that Australia had higher productivity than US. Overall, both these economies are prevailing at expansionary stage of business cycle and are moving towards peak. Reference Australia GDP | 1960-2018 | Data | Chart | Calendar | Forecast | News. (2018).Tradingeconomics.com. Retrieved 23 January 2018, from https://tradingeconomics.com/australia/gdp Gal, J. (2015).Monetary policy, inflation, and the business cycle: an introduction to the new Keynesian framework and its applications. Princeton University Press. Gillespie, A. (2014).Foundations of economics. Oxford University Press, USA. Jorgenson, D., Gollop, F. M., Fraumeni, B. (2016).Productivity and US economic growth(Vol. 169). Elsevier. Lewis, W. A. (2013).Theory of economic growth(Vol. 7). Routledge. Markusen, J. R. (2013). Putting per-capita income back into trade theory.Journal of International Economics,90(2), 255-265. McLean, I. W. (2012).Why Australia prospered: The shifting sources of economic growth. Princeton University Press. Rios, M. C., McConnell, C. R., Brue, S. L. 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