economics assignment

| September 28, 2018

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ECOM4000

Economics

Trimester
3, 2014

Individual Assignment

ECOM4000
Individual Assignment

Individual
Assignment

Short Answer
Questions– based on Economic Theory

This assignment
counts for 20% of your total marks

Due Friday Week 11, 13th February 2015
by 5pm AEST (Australian Eastern Standard Time) on the portal under
“Assignments”

Instructions


Do this assignment individually.


You may need to do
research of your own as well as reading the articles
provided. Marks are awarded for this.

• Address
each question directly. You do not need to present answers in essay or
report form.

• Make
sure you explain your diagrams and answer all parts of each question. You do not
need to write a huge amount for each question. The word limit is around
1000-2000 words


Reference your answers
if you are using information from another source using in-text referencing
and include a reference list at the end of the assignment. You do not
need to reference lectures and tutorials.


5 marks are awarded for
correct use of in text referencing and a reference list at the end of the
assignment. A referencing guide is uploaded on the ECOM4000 portal page.


The assignment
will go through Turnitin and any plagiarism will be traced. As a result you can
get 0 for your assignment.


Penalties for plagiarism
are serious. Please see p.4 of Student Misconduct Policy for a definition of
plagiarism and the consequences: http://kbs.edu.au/CurrentStudents/SchoolPolicies/InformationforallStudents/St
udentMisconductPolicy/tabid/445/Default.aspx


Doing this assignment will be good
preparation for the exam.


**Please
submit your assignment on the portal as a word document (NOT A PDF) and
insert any pictures/ diagrams that you draw as pictures into the word document.
You can insert pictures by:

o
Drawing them in programs like “paint” and
pasting it into thedocument

o
Drawing them by hand and scanning them in
and then pastingthem as
a picture into the word document

o
DO NOT simply copy pictures of graphs from
the internet. Youhave to draw them yourself

ECOM4000
Economics, Individual Assignment, T3 2014

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ECOM4000
Individual Assignment

Some
useful sources:

http://www.budget.gov.au/2014-15/index.htm

http://www.rba.gov.au/statistics/cash-rate/

http://www.rba.gov.au/media-releases/index.html

http://www.tradingeconomics.com/australia/indicators

Part
1: Firm Perspective [35 marks]

Read
the below two sources below and then answer the questions/

Source
1:

Students
trim University of Canberra’s academic gown price monopoly

Date:
November 8, 2014

Matthew Raggatt
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It’s the seemingly inevitable cost that
goes with being handed a university degree, but two Canberrans have done their
bit to save well-dressed students money on graduation day.

As
the debate over deregulation and soaring degrees costs continues around the
nation, Australian National University (ANU) alumni Eric Liu and Haosi Zhang
have started their own business selling discounted academic gowns. Their
challenge to the established market appears to have forced a 30 per cent price
cut from the University of Canberra.

Mr Liu, 25, now studying a masters in
law, said the pair’s UniGowns business began in July and was motivated more by
saving students than making profit. “Basically the idea came from some of
our friends at the ANU and UC who were complaining about how ridiculously expensive
[graduation gowns] are,” he said.

“We
think of it as a business to challenge the universities’ UC Union monopoly
[previously there was only one supplier for ANU Australian National University]
and collapse the price.” A gown, hood and mortar board are a mandatory
part of graduation ceremonies around the nation. UniGowns sold about 30 of
their $89 sets in the company’s first outing at the UC graduations last month.

Mr
Liu said the university has dropped their hiring price for the set from $130 to
$110 as a result, which includes the mortar board to keep, but went further to
offer a special $89.95 purchase at the October graduation.

…The
UC Union, a wholly-owned entity of the university, has previously been the
exclusive seller of the graduation wear.

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Economics, Individual Assignment, T3 2014

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ECOM4000
Individual Assignment

Union
chief executive Joe Roff could not be reached for interview this week, but said
UC welcomed competition particularly where students benefit.

Source:
http://www.canberratimes.com.au/act-news/students-trim-university-of-canberras-academic-gown-price-monopoly-20141108-11ho19.html

Based on the article what market
form did the market for graduation regalia (a gown, hood and mortar board)
at ANU most closely resemble before Mr. Liu started his UniGowns
business? Why? Represent this using an economic diagram and the relevant
price from the article. (6 marks)

Once the students started their
rival business (UniGowns) what form did the market for a graduation set at
ANU take? Explain your answer with reference to theory. How does the price
and quantity in this market compare to the price and quantity before the students
started this business? (5 marks)

If as described in the article
the only suppliers of gowns at ANU was the UC Union and UniGowns, would it
be in both their interests to have a price war and compete with each other
or to keep prices high? How does this relate the Nash equilibrium in game
theory? (5 marks)

Describe a business that you and
your friends can start this year. What market form (i.e. monopolistic
competition) is the market you want to operate in? How will this market
form affect your profits? Draw a diagram to represent the market your
business will be operating in and your individual cost curves. You will
need to do some research here. (10 marks)

What
was the reason Mr. Liu have for starting the business in the article? Conduct
some research into economic theory about the incentives which drive
individuals and businesses. Do you believe his reason for starting the
business? Why or why not? (9 marks)

ECOM4000
Economics, Individual Assignment, T3 2014

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ECOM4000
Individual Assignment

Part
2: Macroeconomic Perspective [40 marks]

Consider
the sources below and answer the following questions:

Source
1:
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Fiscal
and monetary policy—renewed international debate
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Robert
Dolamore, Economics
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Key issue
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The global
financial crisis has sparked renewed international debate about the roles and
conduct of fiscal
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and
monetary policy.

The global financial crisis (GFC) has
prompted renewed international debate about the roles and conduct of fiscal and
monetary policy. The International Monetary Fund (IMF) has been at the
forefront of this debate as economists try to identify the lessons from the GFC
for macroeconomic policy. This note briefly sketches some of the key ideas from
this debate.

The pre-GFC consensus

In the years prior to the GFC a
consensus developed about the roles fiscal and monetary policy should play in
economic management. Monetary policy was seen as the appropriate policy
instrument to stabilise short-run fluctuations in aggregate demand. Monetary
policy can be adjusted relatively quickly and if delegated to an independent
central bank is less susceptible to the influence of political considerations.

In
contrast, discretionary fiscal policy was seen as having less of a role in
short-run demand management. Among other things, discretionary actions are less
nimble than monetary policy and therefore less suited to managing ‘normal’
fluctuations in activity. The effectiveness of discretionary actions tends to
be blunted because their formulation and implementation can lag economic
developments and are susceptible to political influence. Further, such measures
are not easily reversed when they are no longer justified by economic
conditions.

Generally, fiscal policy was seen as more
appropriately focused on the medium to longer term. For example, fiscal policy
can help address medium term structural issues and ensure the long term
sustainability of public finances.

However,
this was not seen as precluding a role for the automatic stabilisers. The
automatic stabilisers can cushion short run fluctuations with practically no
information and implementation lags, and relatively short impact lags.
Importantly, if the automatic stabilisers are left to operate symmetrically
over the economic cycle, they should not contribute to any structural
deterioration in the budgetary position.

A post GFC re-think

The
use of fiscal stimulus measures in response to the GFC has given greater
prominence to discretionary fiscal policy as a countercyclical tool. It has
been suggested that during the crisis fiscal policy had a

‘sleeping
beauty’ moment—with conventional monetary policy rapidly reaching its limits
and with the

ECOM4000
Economics, Individual Assignment, T3 2014

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ECOM4000
Individual Assignment

financial
system experiencing acute problems, the ‘forgotten’ tool of discretionary
fiscal policy was ‘rediscovered’ as a way of supporting aggregate demand.

…The
GFC has also sparked a re-think about the limits of conducting monetary policy
primarily through changes to official interest rates. A concern here is that
official interest rates are too broad an instrument to deal with the situation
where an asset price bubble is developing in one part of the economy but
inflationary pressures in the rest of the economy are relatively subdued. In
this scenario raising interest rates may successfully dampen the bubble but
risks constraining economic activity more generally.

Source: http://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/Briefin
gBook44p/FiscalMonetaryPolicy

Source
2:

Disastrous
jobs data will create more work for the RBA

Callam Pickering

7 Aug 2014, 2:36 PM

The unemployment rate rose sharply in July — and now sits
higher than the United States unemployment rate — but it might take a few
months to sort the signal from the noise. Nevertheless, the Australian economy
remains weak and the Reserve Bank of Australia needs to take decisive actions
to support the economy.

On a seasonally-adjusted basis, the unemployment rate rose to
6.4 per cent — its highest level in twelve years — and is 0.7 percentage
points higher over the year. The result missed market expectations that the unemployment
rate would be unchanged at 6.0 per cent.

Today’s data may reflect the next stage of Australia’s downturn
but it may also reflect volatility. It might take another month or two to
separate the signal from the noise.
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As always, a correct assessment of Australia’s labour market
requires consideration of both the unemployment and participation rates.
Considering either one in isolation can be misleading.

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Economics, Individual Assignment, T3 2014

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Individual Assignment

The participation rate rose slightly in July, following a modest
rise in June, which has placed a little upward pressure on the unemployment
rate. One possible reason for the recent surge is that it reflects renewed
job-searching efforts following the federal budget. Unfortunately, that search
has been in vain due to insufficient job creation.

In the medium-term, the participation rate is set to fall
further, with more baby boomers entering retirement. This will be partially
offset by high population growth but that could result in a persistently high
unemployment rate if the labour market cannot absorb that growth.

Employment growth eased further on a trend basis, with part-time
employment now declining consistently on a monthly basis. Employment among
women continues to rise but is being partially offset by a fall in the number
of men employed.
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What this means for monetary policy is unclear. At the same
time, the result flies against expectations and provides further evidence that
the economy is not rebalancing as quickly or successfully as the RBA has
envisaged. The RBA still believes that the full effect of low interest rates
has not yet been seen and it may be correct. Construction, for example, has
only just started to rise.

Low interest rates have
supported lending activity but most of that has flowed through to mortgages on
existing properties, which does little to increase the productive capacity of
the Australian economy. Housing construction is beginning to pick up, which
will support employment, but it remains an incredibly small share of real GDP.

There is a lot riding on the next few meetings for the RBA. In
setting rates low, they have wisely taken a forward-looking approach to policy,
which has often been at odds with some market economists. However, with each
passing month, it appears more certain that they have been too optimistic.

Australia’s unemployment rate is now higher than the United
States — which is at 6.2 per cent — but the Federal Reserve is currently
rocking emergency level rates that are stuck firmly at the zero lower bound.
That doesn’t mean that the RBA should follow suit; I believe the US could
support higher rates. But it highlights the different philosophy that holds
sway at each central bank.

The RBA is optimistic because the Australian economy has proved
resilient to economic shocks for over two decades. The Fed remains pessimistic
because the US economy has suffered a once-in-a-lifetime financial crisis.

Unfortunately, blind faith in Australian exceptionalism won’t be
sufficient to rebalance the economy. The RBA needs the dollar to decline,
non-mining investment to rise and the household sector to strengthen. We need
an economy that isn’t entirely reliant on Chinese demand.

ECOM4000
Economics, Individual Assignment, T3 2014

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ECOM4000
Individual Assignment

Facilitating this shift is
difficult but manageable if the RBA is decisive. A couple of rate cuts,
combined with macroprudential policies to curb mortgage lending, will boost
confidence, ease household budgets and redirect lending activity towards the
non-mining sector. A word in the ear of the federal Treasurer to develop a jobs
plan wouldn’t be a bad idea either.

Source:
http://www.businessspectator.com.au/article/2014/8/7/australian-news/disastrous-jobs-data-will-create-more-work-rba

Source
3:

Economic
Data (Trading Economics)
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Explain how “discretionary
fiscal policy” can be “countercyclical” and can be used to support
aggregate demand. Us an AD/AS model to support your answer. (5 marks)

Use an aggregate demand and
supply model to demonstrate where the Australian economy is currently operating
in relation to full employment and explain the reasons for this. Based on
your diagram, the above sources and

ECOM4000
Economics, Individual Assignment, T3 2014

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ECOM4000
Individual Assignment

your
own researchwhat phase of the business cycle do
you think theAustralian economy is currently in? Explain your
reasoning. (8 marks)

Based
on your research evaluate the fiscal policy the government is currently
pursuing. Do you believe this is appropriate given the state of the
economy at the moment? Why or why not? Use an AD/AS diagram in your
discussion. (7 marks)

Based on your research evaluate
the monetary policy is the RBA is currently pursuing? Do you believe this
is appropriate given the state of the economy at the moment? Why or why
not? Use an AD/AS diagram in your discussion. (8 marks)

What
effect do you think the lower dollar could have on inflation in Australia?
Why? If in 2015 inflation rose to 4% and unemployment rose to 7% what fiscal
policy would you advise the government to pursue? Why? Demonstrate
the effects of your proposed policy using an AD/AS model. (12 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. A referencing guide is
available on the portal under assessments. Both of these will count for (5
marks)

Total 80 marks

ECOM4000
Economics, Individual Assignment, T3 2014

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