Financial Markets and Institutions in Australia - Assignment Example

Name: Tutor: Title: Assessment Institution: Date: Question 1b i) The above graph illustrates production possibilities of a given country that produces only two products, which are sunscreen in litres per month and food in kilograms per month. The trade off between the two commodities, that is sunscreen and food, is in such a way that more food is foregone if this country decides to produce only sunscreen. On the other hand, less sunscreen is foregone if this country decides to produce only food. The trade off is however different, if this nation decides to produce either 100litres of sunscreen or 100 kilograms of food. If it decides to produce 100 kilograms of food, it will have to forego 100 litres of sunscreen. Similarly, if it decides to produce 100 litres of sunscreen, it will have to forego 100 kilograms of food. ii) The amount of sunscreen to be produced so as to attain production efficiency can be calculated by first determining the equation of the line, which is given by y = a + bx. We first begin by calculating the gradient, b b = ∆Y/∆X Where Y denote sunscreen in litres and X denote food in kilograms. Therefore, by choosing any two points from the graph, such as (300, 200) in the X axis and (0, 50) in the Y axis, the gradient of the line will be calculated as follows, 50-0 = 50/-100 = - 0.5 200-300 The equation of a straight line normally takes a form of y = a + bx, where a is the adjacent point and b the gradient. By inserting the calculated gradient in the equation, Y = a – 0.5x To determine a, we take any point from the graph, such as (300, 0), 300 represent a point in x axis while 0 represent a point in the y axis. By inserting this two points in the above equation, a is found to be 150. Therefore, the equation of the line becomes, Y = 150 – 0.5X. From this equation, the amount of sunscreen to be produced, if 150 kilograms of food per month is produced, will be calculated as follows Y = 150 – 0.5 (150) = 75 Therefore, if the country produces 150 kilograms of food per month, it will have to produce 75 litres of sunscreen for it to attain production efficiency. iii) In order to calculate opportunity cost, it is important to first find the combination of goods produced and then determine the amount foregone, which is the opportunity cost. If one kilogram of food is produced, the amount of sunscreen to be produced so as to attain production efficiency will be, Y = 150 – 0.5 (1) = 149.5 litres, the opportunity cost of producing 1 kilogram of food therefore will be 150 – 149.5= 0.5 litres. If on the other hand 1 litre of sunscreen is produced, the amount of food to be produced so as to attain production efficiency will be 1 = 150 – 0.5X = 0.5X = 150 – 1, X = 149/0.5 = 298, therefore, the opportunity cost of producing 1 litre of sunscreen will be 300 – 298 = 2 litres. Question two a (i) Gross domestic product (GDP) is calculated as GDP = C+ I + G+ (X-M) Where C is consumption, I is investment, G is government expenditure and X-M is net exports. From the table, government expenditure, G = 267, Consumption = 791, investment = 209, net exports, X-M = 322-366= -44 GDP = 791 + 209 + 267 -44 = 1, 223 billion pounds ii) The above GDP is calculated using the expenditure approach. This approach measures GDP as an aggregate of investment, government expenditure, consumption expenditure and net exports. In short, when using expenditure approach, GDP can be calculated using the following formula GDP = C + I + G+ (X-M) b) (i) nominal GDP for Tropical Republic in 2008 and 2009 will be For 2008 (800 X 2) + (400X 10) = 5,600 dollars For 2009 (900 X 4) + (500 X 5) = 6,100 dollars ii) The real GDP for Tropical Republic taking 2008 as the base year will be, Real GDP = (900 X 2) + (500 X 10) = 6,800 dollars Question Three a i) unemployment rate is the amount of labor force that is not employed. It is normally expressed in percentage form. Unemployment rate is calculated as follows Number of individuals who are unemployed X 100 Labor force Number of people who were unemployed in 2008 = 80,200 Labor force = 1,560,800+80,200= 1,641,000 Unemployment rate in 2008 = (80,200 / 1,641,000) X 100 = 4.887% Unemployment rate in 2009 = number of unemployment individuals in 2009 X 100 Labor force in 2009 Number of unemployed individuals in 2009 = 95, 400 Labor force = 95,400+1,601,000= 1,696,400 Unemployment rate in 2009 = (95,400/1,601,000) X 100 = 5.62% ii) Working age population in 2008 equals to, Working age population = (labor force x 100)/ labor force participation rate = (1,641,000 X 100)/ (67) = 244,925 people In 2009, the working age population equals to, Working age population = (labor force x 100)/ labor force participation rate = (1,696,400 X 100)/ (67.5) = 2,513,185 people iii) Employment to working population ratio = (employment /Working age population) X 100 In 2008 employment = 80200 and working age population = 244,925 Therefore, employment to working population ratio= (80200/244,925) X 100 = 32.74% In 2009, employment = 95,400 and working population= 2,513,185 Employment to working population will be (95,400/2,513,185) X 100 = 3.8% iv) These data shows us that in Queensland, the changes in labor market in 2008 was positive, that is unemployment rate was low as compared to 2009 and the percentage of working age population who had job in this year was high. b) i) Thailand’s potential GDP will increase. This is because cracking down on illegal immigrants and returning millions of workers to their home countries reduces Thailand’s population. Real GDP therefore will increase since the country’s population has been reduced. This in turn will result into an increase in the country’s potential GDP since potential GDP is quantity of real GDP produced at full employment. ii) Employment in Thailand will increase. More Thailand’s nationals will be employed since many job positions will be left vacant after illegal immigrants are deported back to their home countries. iii) The potential GDP in countries to which immigrants returns will fall. The fall in potential GDP will be as a result of increase in population in these countries. The increase in population reduces the real GDP which in turn reduces the potential GDP. iv) Employment in countries to which immigrants returns will go down. The employment will go down, since by deporting immigrants to their home countries, the supply for labor will increase, thus reducing the demand for labor, which in turn slows down the employment rate. v) The real wage rate will reduce. The reduction in real wage rate will be due to the fact that an increase in population increases labor supply. Firms do always take advantage of the increased labor supply and reduce the wages, thus reducing the real wage rate. Question four a) i) If the government has a budget surplus of $ 1 trillion, there will be an increase in supply for loanable funds which in turn will result into a fall in real interest rate, an increase in quantity of investment and a decrease in quantity of private saving. In this situation, crowding out will not be experienced. ii) If the government has a budget deficit of $ 1 trillion, there will be an increase in real interest rate, an increase in quantity of private saving and a decrease in quantity of investment. The increase in real interest rate, increase in quantity of private saving and the decrease in investment are as a result of increase in demand for loanable funds, which is brought about by the government budget deficit. In this situation, crowding out will prevail. iii) If the government experiences a budget deficit of $ 1 trillion and the Recardo-Barro effect occurs, there will be no effect on real interest rate and quantity of investment. This is because, with Recardo-Barro effect, a budget deficit will first increase the demand for loanable funds. Rational taxpayers will however enhance saving, which enhance supply for loanable. Therefore, with Recardo-Barro effect, both the supply and demand for loanable of funds are enhanced. These effects on supply and demand for loanable of funds will cause the quantity for investment to remain unchanged. In this situation crowding out is avoided. b) i) Tractors parts would have taken the place of cruzeiro in Brazilian economy since they can act as a store of value, that is, they can be kept for a while then exchanged later for other goods and services. ii) Packets of cigarettes can also take the place of cruzeiro since they can be stored and later exchanged for other goods and services. iii) Loaves of Bread would not take the place of Cruzeiro. This is because they cannot be stored for long so as to be used for exchange of goods and services in later periods. iv) Similarly, impressionist paintings would not take the place of Cruzeiro since they spoil first and thus, cannot be stored and used later for exchange of goods and services. References Ford, T., & Valentine, S., 2005, Financial Markets and Institutions in Australia. Prentice Hall. Organisation for Economic Co-Operation and Development, 2010, OECD Economic Surveys: Australia. OECD Publishing. Spoehr, J., 2009, State of South Australia: From Crisis to Prosperity? Wakefield Press. Read More