04 Jun Question ECOM4000 Economics Trimester 1, 2014 Individual Assignment
Question
ECOM4000 Economics Trimester 1, 2014 Individual Assignment
Part 1: Firm Perspective [25 marks] 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.
1. Based on the article above 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 c) How and why is the government seeking to increase competition in the banking sector? Explain your answer with reference to the diagram you constructed in part b). 5 marks 2. Briefly describe what triggers entry in a perfectly competitive market and the process that ends further entry. Use a graph in your explanation.
Part 2: Macroeconomic Perspective [40 marks] 1. Using the sources below and your own research answer the following questions: ISTAT cuts Italy GDP forecast to -1.4 pc, unemployment to rise Reuters May 6, 2013, 02.06PM IST
a) What is austerity and why have some member countries of the European Union had to pursue this policy? (Hint: You need to conduct some research) 5 marks b) How would additional austerity affect Italy’s economic growth, unemployment and inflation today? What do you think would be a more effective fiscal policy for the government to use? Justify your answers with the aid of an economic diagram.10 marks 2. What was the unemployment rate in Italy in January 2013 and in July 2013? What is the labour force participation rate in Italy in January 2013 and July 2013 according to the below data? What do these statistics tell you how employment in Italy has changed? 10 marks
3. The International Monetary Fund’s World Economic Outlook database provides the data in the table for India in 2004, 2005, and 2006. a) What changes in long-run and short-run aggregate supply and aggregate demand are consistent with these numbers? Demonstrate your answer with a diagram. 7 marks b) List two factors that might have produced the changes in aggregate supply and aggregate demand that you have described in your answer to (a). 4 marks c) From the above data, do you think India has an inflationary gap, a recessionary gap, or is at full employment? 4 marks Do not forget to include a reference list for any sources apart from lectures or tutorials. You also need to include in text references. Both of these will count for 5 marks.
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