Economics Assignment

1 (a) In reference to Figure 1, the country topping the net government debt was Greece with over 140%; whereas the lowest government debt was recorded in Australia (below 20%). Government debt in Greece has gained greater concern than in Australia because it causes serious impacts on Greece’s citizens. Greek government had carried out austerity measures to reduce the debt, including cutting pensions and imposing additional tax. More citizens were losing jobs, and the country’s unemployment rate, which was 16%, continued to grow; whereas Australia was experiencing the fastest growing advanced economy in the world. Therefore, impact of government debt in Australia will not be as bad as in Greek. Besides, government debt in Greece has caused greater concern because of their higher foreign debt. If Greek government defaults, that would affect the European Central Bank (ECB) as ECB is major lender to Greece. For example, German banks held $22.7bn of Greek government debt. As if Greece couldn’t pay the debt, the economy in European countries would be greatly affected.
(b) Terms of trade is a measure of the ratio of export prices to import prices. From Figure 2, the terms of trade of Australia is in a favourable trend. An improving terms of trade indicates that Australia’s export price rises faster than import price. In 2008, Australia exports were more that imports, especially mineral resources like coal and mine, which are simply transform manufactured. For example, in 2008, China imported large amount of mineral resources such as coal from Australia for preparation of Olympics Game. An increase in export earnings had reduced the current account deficit of Australia. Current account balance of Australia in 2008 has improved from approximately -7% to -2.2% as shown in Figure 3. (c) Exchange rate in Australia is the value of Australia dollar (AUD) expressed in terms of foreign currencies. After a surprise fall in Australia's unemployment rate in first two weeks