2. Briefly describe what triggers entry in a perfectly competitive market and the

04 Jun 2. Briefly describe what triggers entry in a perfectly competitive market and the

Question
ECO1002 Individual Assignment

ECO1002 Economics, Individual Assignment, T1 2014

Part 1: Firm Perspective [20 marks]

1. Use the following article and your own research to answer the following questions:

Competitive dynamics in the banking sector

The Treasury presentation earlier in the week to the Senate inquiry on competition in the banking

sector drew attention to a number of significant developments which have, collectively, altered the

competitive dynamics of the retail banking sector in recent years.

… there has been further consolidation in the Australian banking sector since the global financial

crisis.

A consequence of these factors is that the four major banks have expanded their collective market

share across a range of loan and deposit products.

This is illustrated in the home loan market (Chart 5). The share of total housing loan credit for the five

largest banks — the four major banks (Commonwealth Bank, NAB, ANZ and Westpac) plus St

George — has increased from around 60 per cent before the onset of the GFC in mid-2007 to around

73 per cent.

Chart 5: Major banks (Wespac, Commonwealth Bank, NAB, ANZ) gain market share

Source: RBA.

…The Government is seeking to enhance competitive pressures in the provision of retail banking

products, including home loans, with the package of measures announced on the weekend. This

includes:

• banning exit fees on new home loans;

• examining providing a capacity for consumers to

transfer deposits and mortgages between banks;

ECO1002 Individual Assignment

ECO1002 Economics, Individual Assignment, T1 2014

4

• enhancing disclosure of home loan products;

Source: http://www.treasury.gov.au/PublicationsAndMedia/Publications/2011/Economic-Roundup-Issue-

1/Report/The-Australian-banking-system-challenges-in-the-post-global-financial-crisis-environment

1. Read the article above and answer the following questions.

a) What type of market do Australian Banks operate in? How has the Global

Financial Crisis affected competition in this market? Explain your answer. 7

marks

b) Assume the biggest four banks in Australia decided to collude and agree to

charge a high price on banking products. Graphically demonstrate the price

and output in this market and explain your diagram. 8 marks

process that ends further entry. Use and refer to a diagram in your answer. 5

marks

Part 2: Macroeconomic Perspective [40 marks]

1. In Japan, potential GDP is 600 trillion yen and the table shows the aggregate

demand and short-run aggregate supply schedules.

a) What is the short-run equilibrium, real GDP and price level? (5 marks)

b) Does Japan have an inflationary gap or a recessionary gap and what is its

magnitude? (5 marks)

ECO1002 Individual Assignment

ECO1002 Economics, Individual Assignment, T1 2014

5

2. Answer the following questions with reference to the below data about

Greece.

Greece Macroeconomic Forecast 2015

Macroeconomic Indicator CURRENT

(2014) FORECAST 2015

GDP ANNUAL GROWTH RATE -2.3% -2.67%

WORKING AGE POPULATION 11,290,000 11,240,000

EMPLOYED PERSONS 3,609,260 3,781,000

UNEMPLOYED PERSONS 1,319,620 1,300,000

YOUTH UNEMPLOYMENT RATE 58.3% 56.34%

EXPORTS 2049.6 2363

IMPORTS 4031 4255

GOVERNMENT DEBT TO GDP 156.9 171

GOVERNMENT BUDGET VALUE 495 -4646

GOVERNMENT SPENDING 8668.9 8649

INDUSTRIAL PRODUCTION 1.7 0.71

CONSUMER CONFIDENCE -59.7 -67.44

Source: http://www.tradingeconomics.com/greece/forecast

a) Using the aggregate supply and demand model demonstrate what you think

will happen to the Greek economy in 2015 based on the above forecasts.

Justify your answer with reference to the components of Aggregate

Demand. 8 marks

b) What are the problems facing this economy and what fiscal policy can the

government undertake to address these problems? How would this fiscal

policy affect the Greek economy? Answer your question with reference to

your diagram in a). 7 marks

c) What challenges would face the Greek government if they wanted to

undertake fiscal policy to address the problems described in b? 5 marks

d) Calculate the unemployment and labour force participation rates in 2014

and in 2015 based on the figures provided above. 5 marks

e) Using the figures you calculated in d) and assuming the forecast figures

provided above are correct, what conclusion can you make about how