ECO10250: Economics for Decision Making - Macroeconomic Performance of Australia - Assessment

December 19, 2017
Author : Charles Hill

Solution Code: 1ADFD

Question: Economics for Decision Making

This assignment is related to “Economics for Decision Making” and experts at My Assignment Services AU successfully delivered HD quality work within the given deadline.

Economics for Decision Making Assignment

Task

Assignment 1

Note that when you are answering questions that require mathematical calculations, you should provide details as to how the answers were derived. In completing your answers, you should use graphs wherever possible. Always provide a brief explanation of each graph, including how it relates to your overall answer/argument.

Question 1

  1. Explain the link between scarcity, choice and the production possibility curve. In your answer use graphs and include a description of the three concepts in your own words (300 words maximum). 
  2. Outline the major factors that determine the type of economic system existing in a country. Based on the factors you noted above, describe the principal differences between the Australian economy and the Chinese economy (300 words maximum).

Question 2

a.?There has been a breakthrough in the manufacturing of solar-powered motor vehicles that will substantially reduce their costs of production. Use demand and supply curves to illustrate what will happen to:

  1. i) ?the equilibrium price and quantity of solar-powered motor vehicles.
  2. ii) ?the equilibrium price and quantity of conventional motor vehicles.

?(Parts i and ii are worth 2 marks each.)

  1. In an attempt to increase the use of solar-powered motor vehicles the government decides to set a minimum price for solar-powered vehicles that is below the market price. Do you think this is a good idea? Explain your decision using graphs.

Question 3

Explain what will happen to consumer and producer surplus and deadweight loss if the government imposes a tax on sellers for each radio they produce in order to raise government income? Include in your answer an explanation of the three concepts – consumer surplus, producer surplus and deadweight loss.

Question 4

The local cinema wants to increase its total revenue. It is considering the introduction of a 10% discount to locals. The company has estimated that there are two types of local customers who will have different responses to the discount offer. The likely responses of the two groups are shown in the table below.

Group A

(ticket sales per week)

Group B

(ticket sales per week)

Ticket sales before the 10% discount

1.55m

1.50m

Ticket sales after the 10% discount

1.65m

1.70m

  1. i) ?Using the midpoint method, calculate the price elasticities of demand for Group A and Group B.

  2. ii) ?Explain how the discount will affect total revenue from each group.

iii) ?Should the company offer the discount if it wants to increase its total revenue.

  1. iv) ?Describe the impact on the demand elasticity for the original company when another cinema opens in the town.

Question 5

  1. a) ?Complete the cost schedule below:

Total Product

Total Fixed Cost (TFC)

$

Total Variable Cost (TVC)

$

Total Cost (TC)

$

Marginal Cost (MC)

$

Average fixed cost

(AFC)

$

Average variable cost

(AVC)

$

Average total cost

(ATC)

$

0

50

50

1

70

2

85

3

95

4

100

5

110

6

130

7

165

8

215

9

275

  1. If the firm is operating in a perfect market where the price is $35 dollars how many units should this firm produce in order to maximise profit? Explain your answer.
  2. Graph the average variable cost, average total cost and marginal cost and marginal revenue curves.

Assignment 2

Prepare a report on the current state of the Australian economy and its management by the Federal government. You need to do this by examining the following four economic indicators - economic growth (GDP), unemployment, inflation and trade (including the terms of trade, the current account, net foreign debt and the value of the Australian dollar). In your report you are expected to outline the target values for these economic indicators as well as the trend in these economic indicators over the last 10 years. Finally, you should outline the current macroeconomic policies of the Federal government and RBA where you think these policies may relate to these four economic indicators and comment on whether you see these policies as suitable in the present economic environment.   Given your analysis, you are expected to conclude your report with policy recommendations to achieve targeted economic growth, unemployment, inflation and trade outcomes.

Presentation of report

The report should not exceed 1500 words. This word limit does not include the abstract, tables, graphs and reference list.

The report should be word processed using a font size 12 with 1.5 line spacing.

Structure of report

Your report must include:

  • an appropriate title
  • an abstract (sometimes called an executive summary)  summarising the report
  • an introduction in which you briefly explain what you are going to address in the report and why
  • the body of the essay broken into sections with appropriate section headings
  • a brief conclusion that should summarise your analysis and your predictions and recommendations
  • appropriate referencing and a reference list as required.

Although the requirements for presentation and structure may appear pedantic, they are not. In the business world you may often find yourself involved in writing a report – perhaps even for multilateral and government organisations such as the IMF or OECD. We suggest that you devote some time to developing this skill. Your future career can only be enhanced by your ability to communicate effectively in writing.

Marking criteria Assignment 2

Your report will be marked against the following criteria:

  • Abstract, presentation, grammar, structure, etc.
  • Appropriate description of the four economic indicators- economic growth, unemployment, inflation and trade and the trend in these indicators over the last ten years.
  • Succinct description of current macroeconomic policy in Australia and appropriate assessment of its effectiveness.
  • Useful conclusions and recommendations about the future direction of policy including threats to current policy settings.
  • Evidence in the report of a depth of research and accuracy in referencing (Harvard Style).

Some advice about Assignment 2

Your short “Abstract” needs to describe the aim of the report and a brief overview of the economic targets, government policy and recommendations. It should be approximately 500 words.

The "Introduction" is a brief paragraph or two that outlines the aim of the report and how the report is structured (i.e., what you are examining). The content of your assignment should generally reflect the marking criteria. REMEMBER that an Introduction is different to an Abstract.

The "body" of the report is the content of your research and analysis. You may want to consider dividing you report into different sections with appropriate subheadings.

You should begin the body of your work with a discussion of the current values of the four economic indicators under investigation (Economic Growth (GDP), Unemployment, Inflation and Trade) and the government targets for each of these. You should also discuss the trends in the economic variables over the past 10 years. This section is worth 20%.

Once you have discussed the variables you should discuss current macroeconomic (Fiscal and Monetary) policy in Australia. In addition to a description of policy you need to provide your assessment of the effectiveness of the policy. The effectiveness of macroeconomic policy will be determined by how close the current figures are to policy targets. For example, did Australia reach targets or not and/or how close has Australia been to meeting targets? You NEED to give your (well thought out) opinions about how well current macroeconomic policy is working based on the data obtained. You need to support your opinions with scholarly research to further enhance/prove/justify/confirm your findings. This section is worth 40%.

In your "Conclusion" you need to discuss what the future is for the economy (the strengths and/or threats) as well as canvass the policies you would recommend to ensure meeting the economic targets. You should again call upon scholarly research to further enhance/prove/justify/confirm your commentary in this section. This section is worth 20%.

A reminder: To complete your assignment you need to ensure you have used correct Harvard referencing throughout the report and that you have correctly formatted your reference list. Only include the references that you actually used in your report.  This section is worth 10%.

You should check your “turnitin” value before submitting your assignment. A value of over 50 per cent should be of concern to you.

There are a number of useful resources you can use to gather information but make sure you are using reliable sources. Useful sources of information might include the following web sites:

  • Australian Bureau of Statistics < https://www.abs.gov.au>
  • The Reserve Bank of Australia <https://ww.rba.gov.au>
  • Treasury <https://ww.treasury.gov.au>
  • Department of Finance <https://ww.finance.gov.au>
  • The Productivity Commission <https://www.pc.gov.au>
  • The World Trade Organization <https://www.wto.org>
  • ABC News <https://www.abc.net.au/news/>

Some newspaper sites may also be useful. For example, the Australian Financial Review, the Sydney Morning Herald, the Australian, the Guardian and other major newspapers. The editions around the time of economic policy announcements are especially useful.

You will also need to look closely at some recent budgets that are usually brought down in May (details can be found at https://www.budget.gov.au) and monetary policy announcements about interest rates can be found at https://www.rba.gov.au. The RBA's quarterly statement on monetary policy is also a very useful source of information on the economy and its status. If you find some good sources I suggest that you share them with other students on the Discussion Board.

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Solution:

Introduction:

Australia has shown significant economic progress since the economy embraces globalization and adjusted well with economic liberalism.  Australia has abundance of natural resource like iron ore, coal, uranium and one of the major mining exporter in the world. The economic success of Australia lies in its mining boom. Globalization provides an exposure to the vast global market for its key exports. Globalization is the key driver behind Australia’s economic, technological and cultural progress. Mining boom is considered as the major driving force behind Australia’s economic growth.

This current report considers four key economic indicators to assess the current economic environment of Australia. They are GDP growth rate, inflation rate, unemployment rate and trade balance. The current study provides an in-depth review of the current macroeconomic state of the Australian economy after analyzing the data of major economic indicators for last ten years.

  1. Data on key macroeconomic indicators:

Let us collect the data for major macroeconomic indicators and analyze the trend. The data are collected from World Bank official website.  Our study considers the major macroeconomic indicators for Australia. The data for all the indicators are collected or last ten years (2005-2015).

The collected data are shown in the attached excel.

GDP growth rate:

source: https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?locations=AU

Real GDP growth rate of any economy is one of the primary economic indicators to gauge the economic health of a nation. We have collected the Real GDP growth rate data for Australia ( 2005-2015)  to analyze the economic performance of the economy over the years.

The real GDP growth rate data for last ten years exhibits that the economy has gone through ups and down during this period. The growth rate has come down to as low as 1.7% during the financial crisis of 2009. But Australia suffered much less compare to US and other European economies during the global economic meltdown. Most importantly the economy has recovered very fast and reached to the peak at 3.7% on 2012. But since then the economic growth has shown a rapid fall – mostly due to china’s economic contraction and falling commodity prices. In 2015, Australian economy becomes weak as the growth rate has come down to only 2.26%.

Inflation rate:

Source: https://data.worldbank.org/indicator/FP.CPI.TOTL.ZG/countries?display=default

The trend line of Australia’s inflation rate is steeply downward.  Lower oil price and subdues economy are largely accounted for such a downward trend.  The inflation rate for Australia has been below the target level of RBA of 2% for nearly two years now. The inflation rate within 2 to 3 per cent bound usually reflects the successful monetary policy. As the inflation has come down below the target level, RBA is failing. If the economy is stuck in low inflation malaise then time has come to change the policy directions. Inflation rate has a close relation with the labor market- Philips curve theory suggests an inverse relation between the inflation rate and the unemployment rate. If the inflation rate data provides an indication of stagnated labor market due to lack of aggregate spending then there is a room for further fiscal stimulus (Mitchell B. 2016).

Unemployment rate:

Source: https://data.worldbank.org/indicator/SL.UEM.TOTL.ZS?locations=AU

ABS statistics clearly confirms that unemployment rate has increased significantly in 20014-2015. There is huge lay off in manufacturing sector as outsourcing becomes a common practice now. The complete shutdown of automobile sector largely contributed to massive job loss. Part time employment gains a higher share. The jobless number has increased as the labor force participation rate has increased to 67.4%. But the labor market data is expected to gain its momentum in late 2016 because of housing boom and the expansion of service industries (Palmer D, 2016).

Exchange rate:

Australian dollar is currently experiencing a continuous depreciation against the currencies of their major trading partners. It has been observed that the depreciation of AUD is more prominent against USD and euro. A dramatic fall in the commodity prices are recognized as one of the key driver behind this trend.  Since Australia is a commodity heavy economy, any change in commodity price has a huge economic impact on the country. The currency of Australia along with Canada and New Zeeland has experienced a persistent downward pressure due to fall in commodity prices. Economists have identified the currencies of these three currencies are worst performing in the year 2015 (Powell R. 2015).

https://fred.stlouisfed.org/series/DEXUSAL/downloaddata

Export – Import:

Australia has a goof trading relation with many countries. The trade agreement between China and Australia ChAFTA has improved the trading relation with China.

Australia had a comparative advantage in mining and agriculture for a long due to abundant supply of natural resources but recent studies and data confirms that mining is no longer the biggest exports in Australia. Australian economy is believed to undergo enormous structural changes during the recent times. Australia has gradually shifted their focus on service sector and attained huge specialization in services like global tourism and international education.

Gradually Australia has obtained comparative advantage service industries and China has become the largest export market. Education and tourism industry has overtaken iron ore in exports and become the biggest foreign exchange earners for Australia (Pascoe M 2015).

Source: https://data.worldbank.org/indicator/NE.EXP.GNFS.ZS/countries?page=2&display=default

Australia’s fiscal and monetary policy response:

Australian economy is currently operating at the below full employment level with a slow pace of economic growth and relatively high unemployment. The current health of Australian economy intends RBA to respond by decreasing the cash rate. As an expansionary monetary policy RBA has slashed the cash rate to accomplish the objective of full employment as well as to control inflation.

RBA has kept the official cash rate steady at 2% and for fifteen consecutive meetings.  In recent meetings RBA has decided to further reduce and bring the cash rate to 1.5%. According to Glenn Stevens’ view, depreciation of currency can be considered as necessary adjustment for realizing the balanced growth particularly in the current state of the economy. RBA is expected to address all the important issues and economic problems to attain the sustainable economic growth and reform their policy response accordingly (Powell R. 2015).

Recommendations and Conclusions:

Australian economy is going through a messy phase due to three key reasons: the slowdown of Chinese economy, the fall in global commodity prices and expectations of Fed’s interest rate hike.  The slow- down of Chinese economy and the consistent fall in world commodity prices have a huge impact on Australian economy. The uncertainty of global economic outlook also plays a huge role here. Due to continuous fall in global commodity prices, the mining industry has observed worst downturn in the century. (YeomansJ , 2016).

The slowglobal growth is accompanied by many other factors like low productivity, weak growth in business investment, low inflation and lower inflation expectations. The inflation and the wage growth remain weak in Australia compare to advanced economies. Continuous weakness in the inflation rate data provides further signal that the economy is not in a good shape. Actually RBA has a little scope to control the total spending. If the monetary policy is found to be ineffective then fiscal policy with superior set of tools must be implemented. Though the job growth and the wage growth remain feeble, it is predicted to rise in late 2016 onwards consistent with positive fundamentals.

The falling Australian dollar looks to be challenging in the long run. The future outlook of Australian economy is not much promising as it still operates below the potential level. The labor market dynamics looks to be weak. A continuous downward pressure of AUD has some adverse impacts on the economy. But Glenn Stevens, governor of Australia’s central bank is optimistic about the devaluation of Australian dollar. He has a positive view and believes devaluation is required for the current state of the economy (Dixon J, 2015).

Above all, even the end of mining boom, the economic performance of Australia is not much bad. Gradually Australian economy has shifted from mining and agricultural based economy to a service economy.  Currently, the economy provides strong focus on service exports like education, tourism and financial service. The deputy governor of the Reserve Bank, Dr Lowe is optimistic about the economic outlook and believed that Australia has proved to be resilient than expected. While commodity prices have come down by 40% and even the mining investment has shown a sharp fall of 40%, the economy managed to expand at a reasonable pace (Wade M, 2016).

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