Economics Assignment based on Competitive dynamics in the banking sector
a) Australian banking market and impact of global financial crisis on market
Australian Banks operate in the money markets and the money market is an important part of financial markets in Economics Assignment which deals in short-term borrowing, lending, buying and selling of assets with original maturities of one year or less (Amihud and Miller, 2010). After the global financial crisis the Australian banking system has become more stronger and effective.Hence, competition is more and the market share of the five major banks ( Commonwealth Bank, NAB, ANZ , Westpac and St George) has increased from 60 percent before the global financial crisis(GFC) to 73 per cent after the GFC.(Alessandrini and Fratianni, 2009). However non-major banks and non banks (financial companies, credit unions, building societies and other non-bank leaders) who were having a good market share in 2007, were affected by the global financial crisis and their market share began to decrease (Argy, 2010). Scrutisation as a method of funding failed due the effects of GFC as a result major banks such as Bankwest and St .George have become stronger after the Global Financial Crisis and have been acquiring other lenders like RAMs and WIZARD
b) Price and output in this market if the biggest four banks decide to collude and charge a high price on its banking products:-
Four major banks occupy 73 percent of the market share in Australia after the global financial crisis (Viceira and Campbell, 2008). Therefore 27 percent of the market is occupied by the non major banks and other non banks (Alessandrini and Fratianni, 2009). Therefore if the they decide to collude and charge a high price on their banking products, there is a fair chance that their market will market share will decrease, small players like non-bank and other financial and Economics Assignment institutions will profit from it. (Refer to Appendix 1)
c) Methods and reasons why the government wants increase competition in the banking sector
Following are the methods adopted by the government to increase completion in the banking sector-: The government will stop collecting exit fees on new home loans and also it will have better understanding the capacity of consumers to transfers deposits and mortgages between banks (Vuolteenaho and Campbell, 2008). It is providing the facility of efficient disclosures on home loan products It is providing assistance to credit unions and helping to build society. Economics Assignment can give power to ACC so that they can investigate and prosecute anti – competitive price signaling. Government will provide proper fast track reforms to credit cards. It will have proper control and growth on ATM reforms. Government will raise community awareness and promoting education programs among consumers
Figure 1: Methods and reasons why the government wants to increase competition in the banking sector
The government is encouraging competions among the big banks because prices on banking products have increased, and it is increasingly becoming difficult for the common public to avail the best banking facilities, market share of the major banks have decreased, thereby hampering the economic growth of the country.
2. Reasons that trigger entry in a perfectly competitive market and the process that ends further entry
In a perfectly competitive market a large number of buyers and sellers exist. So a large number of prospective consumers is always present (Merton,2008). Rationale buyers are found here who are perfectly capable of making proper purchases based on information given It is always easy to enter and exit a perfectly competitive market. All producers and consumers have perfect of the market condition, price of the product and its utility, so operating in a perfectly competitive market becomes easier.There are zero transaction costs involved in selling goods and services in a perfectly competitive market, chances of profit maximization is also high.This process when there is no space for further entry of buyers. There will always be sufficient number of firms in a perfectively competitive so it has space for everyone. It is the best type of market to conduct the business assignment help can be done. The quality and characteristics in a perfectly competitive market do not vary and hence there is greater chances to make profit. It has well defined property rights and they decide what rights are belong to the owner. Costs and benefits do not affect the owner. It is the best form of market that exists in India, and the best place to conduct business.
PART 2 base on ISTAT cuts Italy GDP forecast to -1.4 pc, unemployment to rise.
1a) Meaning of austerity and reasons why this economic policy is followed by the member countries of European Union
Austerity is a set of policies followed by the government in order to reduce budget deficits in bad economic conditions. These Economics Assignment policies contain information regarding spending cuts, and tax increament. Austerity policies aim to show governments’ fiscal discipline by bridging the gap between revenues and expenditures (Lewellen, 2008).Austerity measures are strictly followed to decrease government spending, paying public debt and establishing the country’s financial stability. Austerity helps in reducing interest rates for both the sovereign and domestic borrowers, and therefore investment will be more.
b) Impact of additional austerity:
measures in Italy will reduce the public debt, decrease government spending, control inflation, increase investment opportunities, thereby reducing employment and creating employment opportunities in Italy. A policy concerning the use of government revenue collection and expenses to have an effect on the Economics Assignment and it’s economy or a policy which deals in the government changing the pattern of taxation and government expenses in order to have a effect on the average demand and the level of economic and financial activities
More effective fiscal policy for government:
ORDER Economics Assignment Based On Economic Theory And Get Instant Discount
Fiscal policy would be more effective in Italy, since the country is in the midst of recessions and only made a timid recovery in 2014 by 1.4 per cent (Calomiris, 2010). This fiscal policy is helpful in decreasing unemployment rate and inflation and will have a positive effect on the recession.(Refer to Appendix 3)
2) Unemployment rate and Labour force participation rate in January 2013 and in July 2013
The unemployment rate in Italy in Jan 2013 and in July 2013 is 11.3 % and 12.1 % respectively.Labour Force Participation Rate in Italy is reported by the National Institue of Statistics and labour Force Participation Rate in Italy in Jan 2013 and July 2013 is 64.1% and 62.8 % respectively. (Cliff, 2011)
3) The International Monetary Fund’s World Economic Outlook of India for years 2004, 2005, and 2006.
a) Changes in long- run and short-run aggregate supply and aggregate demand with the help of a diagram:-
The gross domestic product (GDP) is the national indicator that shows the total demand for a nation’s goods and services in a particular period. The change in the gross domestic product has an effect on the supply and demand of a particular country. These changes required for the long term growth of a country.(Merton, R. C. 2008)Increasing GDP- Increase in GDP leads long- term inflation that can continue for a long period.Inflation is the increase in goods and services as a result of increasing demand. This leads to the Federal Reserve to increase the national interest rate. An increase in interest rate increases the cost of credit in the nation, leading to decrease in consumer demand leading to decrease in consumer demand and in the rate of continued growth of GDP. (Vuolteenaho. et al 2008)
Decreasing GDP- A reduction in the rate of GDP leads to decreasing demand of goods and services. As a result the Federal Reserve reduces the interest rate. Lower interest rate leads to decreasing inflating rate making large purchases such as house, cars possible As a result banks are able to transfer more money in the economy in the form of loans. In the above figure we can see that the GDP rate and Inflation rate has increased in the year 2005 .But both has decreased in 2006. So it can be seen that prices of goods and services has increased in the year 2005 leading to decrease in demand of the goods and service, and increase in supply of goods . (Viceira, et al 2008)
b) Two factors which might have caused the changes in aggregate supply and demand are as follows
Price of goods and services have increased in the year 2005 and decreased in the year 2006 leading to changes in the demand pattern of demand patterns of supply and demand. Also increase in GDP rate and simultaneous increase in inflation leads to decrease in demand.( www.bancaditalia.it, 2014)
c) Conclusion:
It can be concluded from the above data India has a recessionary gap. This happens when the real GDP is less than the potential GDP at full employment level. It is the difference between the potential full employment level and the actual employment level. This recessionary gap is putting a pressure on the prices in the long run and slowing down investment activities and the economic growth of the country. It is also known as a contractionary gap and is associated with business cycle contraction. Recessionary gap is very common in India and it affects a large number of population