ECO1002
Economics
Trimester 1, 2014
Individual Assignment

ECO1002 Individual Assignment
ECO1002 Economics, Individual Assignment, T1 2014
2





Individual Assignment
Short Answer Questions– based on Economic Theory
This assignment counts for 20% of your total marks
Due Friday Week 11, 6th June at 5pm AEST (Australian Eastern standard time)
on the portal under “Assignments and Revisions”
Instructions
• Do this assignment individually.
• You may need to do research of your own as well as reading the articles
provided.
• 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 don’t need to write a lot to answer each question. The word limit is
around 800-1500 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.
• Please consult “Student Learning Resources” uploaded on Moodle with the
assignment for assistance with referencing, plagiarism and note taking. The
assignment will go through Turnitin and any plagiarism can be traced. As a
result you can get 0 for your assignment.
• Do not plagiarise your answers- 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.



ECO1002 Individual Assignment
ECO1002 Economics, Individual Assignment, T1 2014
3
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
2. Briefly describe what triggers entry in a perfectly competitive market and the
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
employment in Greece will changed from 2014 to 2015? Will this be a
positive or a negative change? 5 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.
Total Marks 65