This report aims to analyse Australian Real GDP from 1975. The most commonly used indicator of economic growth is the annual rise in real gross domestic product (GDP). The GDP is an estimate of the total value of goods and services produced in a year. Real GDP is calculated by using constant dollar term which corrects for inflation.

The Australian Real GDP figures are provided to the public at the Reserve Bank of Australia (RBA) website. Microsoft Excel was used to generate the 2 graphs on page 4.

Figure 1 shows natural logarithm of real GDP plotted against time. Logarithmic scale is used so that the same proportional increase in real GDP is represented by the same distance on the vertical axis. The trend line (regression line) is the line of best fit. The equation of the trend line is y = 0.0027x + 8.7551, suggesting that real GDP average annual growth is 3.24%.

Figure 2 illustrates Australian output gap and annual growth rate from 1975. The output gap measures the extent of demand-pull inflationary pressure in the economy at a particular time. A positive output gap results when actual GDP is greater than potential GDP i.e. when real GDP is above the trend line. This implies that there would be increasing inflationary pressure and it often happens at the end of a period of sustained economic growth.

The Australian economy experienced a stable growth period from 1975 to Dec 1981. During that time growth rate and had always been positive with output gap went into negative only in the Mar 1978 quarter. Since then there is 2 recessions in Australia.

The first recession occurred in the early 1980s resulting from oil shock and inflation in the US (wikipedia). Real GDP, output gap and growth rate plunged since Sep...