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Section 1 The Australian Business Cycle Overview of the Australian economy The Australian economy over the past 15 years has been relatively stable having the ability to ignore various crises that have effected the world to date such as the Asian financial crises since 1997-1998 Japans slow growth and the American economies dot com bust Other things include the employment rates have been at its lowest for 30 years insignificant amounts of government debt and constant budget surpluses The economist 2005 p2 However more recently the GDP growth has slowed down to 15 in 2004 and a mere 01 in the 2nd quarter of 2005 ABS 2005 OECD as quoted by The Economist 2005 say that this is due to the fact that labour is in short supply and poor infrastructure bottlenecks the reasons for this will be discussed below Lastly an adverse side of the Australian economy is the current account deficit which reached a new of 71 in the 1st quarter of 2005 ABS 2005 quotes by Edwards 2005 chief economist of HBSC state that We have failed to invest sufficiently to sustain the upswing Business confidence remains high however the instability of current oil prices may be influential within the long run with businesses passing on costs to the consumer The Business cycle Keynesian analysis of business cycle The Keynesian analysis of the business cycle involves the use of aggregate demand therefore a demand side issue of the business cycle Sloman Norris 2004 p285 Firstly we shall define what aggregate demand is AD Cd I X-M The above formula provides an overview on the explanation of aggregate demand whereas Cd consumer spending on domestically produced goods and services I investment expenditure by local firms G Government expenditure and X-M represents foreign expenditure on locally produced goods and services less import expenditure Sloman Norris 2004 p248 Issues
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