Global Financial Crisis

Global Financial Crisis
The Global Financial Crisis influence the Australia?s economic growth rates, levels of unemployment and the inflation. by the recent years, the gfc cause to the economic growth recession, it influences on consumption, investment, the government spending and taxation and the exports and imports, and by the way the government was using the macroeconomic polices, monetary policy and the microeconomic reform policies to sustain economic growth. The gfc also influences the unemployment rates increasing, makes more and more people losing their job and don?t have wages and can?t subsist, unemployment impacts economic cost and social costs, government was reducing the unemployment problem by the different types of unemployment, like the structural, cyclical, frictional and the seasonal unemployment. The inflation is aggregate demand is greater than aggregate supply. In Australian, since the 1960s the government always kept lower inflation, and lower inflation may helped Australian government reduce the severity of economic recessions.Economic growth is considered to be the most important measure of an economy?s performance. Economic growth creates jobs to decrease unemployment, it allows individuals to increase their consumption, and increase living standards, it increase the real gdp per capita. The level of economic growth influences on the consumption, investment, government spending and taxation and exports and imports. The effects for economic growth is living standards, employment, inflation, external stability, income distribution and environmental impacts. Increase the real wages and households can enjoy a higher disposable income therefore high living standards. This is the main reason that countries pursue higher levels of the economic growth. The economic growth creates jobs and a enough level of economic growth can help ensure that everyone who is willing and able to work is able to find a job. Increase the level of inflation can increase the price and larger wage claims. High levels of economic growth can therefore pose a risk to the external stability of the economy. In the recent years, the Australian economic growth are recession cause by gfc, and Australian government use the strong economic policy and management framework to improve the economic growth, the Australian business cycle shows the Australian economy trends, since early 1990s, Global economic conditions have generally been favourable with lower inflation, lower interest rates, lower unemployment rates an greater macroeconomic stability worldwide. During the 1990s, the robust performance of the united states economy contributed to Australia?s sustained growth cycle. A sustained improvement in Australia?s terms of trade has lifted domestic incomes and increased Australia?s economic growth. At the height of the commodities boom in 2008, Australia?s terms of trade were at their highest level in over fifty years, driven by soaring commodities prices resulting form the growing resource demands of industrialising economies. Economic management has focused on maintaining economic growth within a sustainable range. The Australian Treasury estimates that Australia?s long-term sustainable rate of economic growth is around 3.25 per cent of gdp. The Australian Government has demonstrated a commitment to use active fiscal policy to lift economic growth during periods of economic downturn. Within weeks of the meltdown on global financial markets in september 2008, the Australian Government announced a major economic stimulus that by the 2009-10 budget added up to $77 billion. The stimulus included cash payments to increase household consumption in the short term, spending on school infrastructure, social housing and home insulation subsidies in the medium term, and long-term transport infrastructure. The Reserve Bank of Australia?s strong focus on maintaining low inflation has meant that the rba has taken quick action to ward off inflationary pressure. Low inflation since the mid 1990s helped keep nominal interest rates low, encouraging consumer spending and business investment. Consumer spending has also been strong in recent years due to increases in real wages, tax cuts and strong employment growth over the early 2000s decade, with the unemployment rate falling to a low of below 4 per cent in 2008. Large increase in asset prices such as real estate and shares during the early 2000s increased the wealth of households, encouraging greater borrowing and consumption. Microeconomic reform helped to overhaul many sectors of the economy and to introduce competitive pressures, as well as encourage the take-up of new technologies. New technologies helped to raise productivity and efficiency in many sectors of the economy. The government use macroeconomic policies to influence the rate of economic growth. Fiscal policy involves the use of the Commonwealth Government?s Budget in order to achieve economic objectives, the government is also able to use monetary policy to influence economic growth.
Unemployment is a problem of an economic system which was important, it is a major cost to an economy, because it results in the opportunity cost of lost production, and increased social welfare payments and a loss of taxation revenue. Unemployment is the number of people who are out of work, but are actively seeking work. For the past three decades, unemployment has been a significant economic policy challenge in Australia. Australia began experiencing higher unemployment rates in the mid 1970s, after recording very low unemployment rates in the 1960s and early 1970s. The level of unemployment peaked in the early 1990s-the10.7 per cent unemployment rate recorded in 1992-93 was its highest level since the Great Depression of the 1930s. The unemployment problem during this period was worsened by extensive structural change and microeconomic reform. Many people who had lost their jobs in declining industries during the recession were unable to obtain new jobs created in growing industries because the job vacancies often required higher or different skills. Following the 1991 recession, there was a steady decline in Australia?s unemployment rate during the 17 consecutive years of economic growth. The extent o the recent fall in the demand for labour has not been fully captured by official unemployment statistics, owing to an increase in the rate of underemployment. Australia needs economic growth rates of around 3.5 per cent or higher in order to make progress on reducing unemployment. The relationship between economic growth and unemployment is explained by Okun?s Law, which says that to reduce unemployment, the annual rate of economic growth must exceed the sum of percentage growth in productivity plus increase in the size of the labour force in any one year. Structural unemployment occurs because of structural changes within the economy caused by changes in technology or the pattern of demand for goods and services. Cyclical unemployment occurs because of a downturn in the level of economic activity, and falls during times of strong economic growth. Frictional unemployment represents the people who are temporarily unemployed as they change jobs-they have finished one job, but have not started a new one. Seasonal unemployment occurs at predictable and regular times throughout the year because of the seasonal nature of some kinds of work. This four are the most important main types of unemployment. The government reduce unemployment is to use macroeconomic policies to sustain economic growth and avoid a recession. Since the 1970s is that unemployment rises quickly during a recession but can take many years to fall afterwards. Avoiding sharp downturns in the economy can therefore minimise any increase in cyclical unemployment. The downturn following the global financial crisis of 2008 forced a dramatic shift towards expansionary fiscal policy, with government spending playing the lead role in stimulating economic activity in the economy. Labour market policies have also played an important role in reducing unemployment, with the aim of helping individuals to gain employment. The nairu is very complex because it attempts to remove cyclical influences, even though the levels of unemployment and inflation are highly influenced by cyclical factors. A lower nairu increase the economy?s capacity to grow without increasing inflation.
Inflation is an economic problem that can have negative impacts on many economic outcomes including economic growth, international competitiveness, exports and income inequality. Maintaining low inflation is a major objective of economic policy because of the benefits that lower inflation provides to the economy in the long run. Inflation also can measure by the percentage change in the Consumer Price Index (cpi). The cpi summaries the movement in the prices of a basket of goods and services, weighted according to their significance for the average Australian household. Australia achieved a sustained reduction in inflation rates from the early 1990s after experiencing relatively high inflation since the mid 1970s. In 1993, the Reserve Bank began to target an inflation rate averaging 2-3 per cent over the course of the economic cycle as a guide to determine interest rate decisions. The main development that brought the high inflation era of the 1970s and 1980s to an end was the recession of the early 1990s. Australia emerged form this recession with low inflation levels. Many economists attributed these lower inflation rates to the impact of structural changes during the 1980s and 1990s. Microeconomic reform increased the intensity of competition within Australia and from overseas, while productivity growth also improved in the 1990s, all contributing to sustained low inflation. Low inflation has a beneficial effect on the level of economic growth because it removes the distortion to investment and savings decisions which high inflation causes. High inflation discourages business investment because it makes producers uncertain about future prices and costs, and therefore future profit levels. The level of inflation is a major influence on nominal wage demands. During periods of higher inflation, employees will seek larger wage increases in order to be compensated for the erosion in the purchasing power of their nominal wages.Monetary policy has played the major role in Australia?s low inflation record since the early 1990s. The rba has used pre-emptive monetary policy by taking action against inflation before it emerges as a problem. Fiscal policy play a support role in maintaining low inflation. The government?s use of microeconomic reform policies has also contributed to australia?s general low inflation environment. This can lead to the emergence of a wage-price inflationary spiral that is very difficult to break, where wage increases lead to higher prices, which lead to higher wage demands and so on. High inflation rates tend to have a negative impact on the distribution of income because lower-income earners often find that their incomes do not rise as quickly as prices. The levels of unemployment and inflation are often closely related, especially in the short term. High inflation results in increased prices for australia?s exports, reducing international competitiveness and quantity of exports. As the price of domestic goods increase, consumers will also be more likely to switch to import substitutes, worsening the trade deficit. In the short term, higher inflation may result in an appreciation of the exchange rate, as speculators expect the Reserve Bank to raise interest rates in response, attracting greater financial flows.
As we can see, the Global Financial Crisis influence on the economic growth, the level of unemployment and the inflation rates. Also economic growth will cause the unemployment rate to decrease, grow cause inflation, inflation will make unemployment decrease in the short-term, but in long-term, the inflation will cause unemployment rise.

Global Financial Crisis 9.7 of 10 on the basis of 1558 Review.