Individual Assignment – ECOM4000 (Economics)
While concerns the market structure of the Australian banks, it is determined that oligopoly and the monopolistic competition are common market structures which exit under the Australian market.
In addition, the bank is found as the most important sector in Australia and the oligopoly is a most popular market structure which is usually adopted by the Australian banks along with only four big banks that dominate the industry (Aalbers, 2016).
In this manner, oligopoly is the market structure in which a small number of companies have a huge share of the market, thus they dominate the whole the market.
In a similar manner, during the global financial crisis, Australia did not face a huge economic downturn.
Although the growth of the economy in the country was slow slightly, the unemployment rate was increased sharply and there was a period of heightened uncertainty.
These things affected the market competition as due to the GFC, the local stock market declined. In the same manner, it also created an impact on Australian households that was the larger decline as it reduced the Australian households by nearly 10 % in March 2009 (Kidwell et al., 2016).
Similarly, because of GFC, depreciation had also measured in Australian Dollar rapidly. Moreover, the greater impact of GFC forces the RBA to intervene in the market for enhancing the liquidity.
If the biggest four banks in Australian such as Commonwealth Bank, Westpac, ANZ, and NAB decided to collude and agree for changing a high price on banking products, there is the several chances and its impact that affect the demand and the supply of the banking products. In this way, the graphical explanation is defined below:
As per the banks collude, the prices of the banking products are increased then the demand of the product will decrease at a significant level because people will shift their interest from expensive products to cheapest and affordable products (Zhang et al., 2017).
Thus, it can be mentioned that higher the prices of the banking products, lower the quantity of the product demanded by the customers within the target market of Australia.
In this manner, the above graph defines that the A, B, and C are the main points on the demand curve and each point represents the direct correlation between the prices (P) and the quantity (Q) of the product demanded by the customers in the market (Arteconi et al., 2016)..
Moreover, on the point of A, the price of the product is P1 and the quantity is Q1 that means there will be the negative relationship between the price and the quantity demanded by the customers and it is reflected by the above-mentioned graph of demand relationship curve.
On the basis of the above graph, it can be mentioned that government is seeking to increase the competition level under the banking industry because, with the help of increasing competition, there is a number of opportunities that can be attracted by the government in respect to develop the companies as well as the to develop the industry too.
By increasing the competition under the banking sector, there are also opportunities of a number of innovations because in respect to stay in the market and remain in the competition, most of the firms find the innovative products as well as services to its customers so that they can stay within the banking industry for the long time period (Noe et al., 2017).
In a similar manner, it is also beneficial for the government to increase the competition because after increasing the competition, government does not need to more focus on the development of the banking sector because firms become more capable for the self-development due to increased competition within the Australian banking sector.
Apart from this, there is also a purpose of the government to increase the competition as the government wants to decrease the prices of the banking products and it can be possible by increasing the competition.
Due to which, firms have to decrease the prices of their banking products unwillingly (Horvath et al., 2016).
In support to this, the example of the above graph can be understood in which it is clearly defined that if the prices of the products increase then the demand of the products decrease whereas if the prices are decreased then the quantity of the products will defiantly be increased and it is quite beneficial for the customers who will be capable to purchase more banking products as well as services.
In concern of the triggers entry under a competitive market, it is determined that new firms or start-ups try to enter into a market under which existing firms or companies are generating the economic profits.
In other words, at the time of making the economic profit by the firms, the economic profit is defined as the inducement for the other firms in respect to entering into the target market for attracting more customers (Borenstein, 2017).
In like manner, as the other firms enter the market, at this time, the supply of the products increases and at the same time, the prices of those products fall. In this similar manner, the fall in the prices of the products eventually reduces the economic profits and due to this, the entry of the new firms stop within the target market that decreases the high competition towards the firms.
In addition to this, it is also defined that apart from the economic profit, brand loyalty through advertising, limited pricing, predatory pricing and vertical integration, etc are the other factors that can restrict the further entry under the market for the new entrants.
In this manner, it is found that these are natural barriers which make the difficult for the new firms to enter the market and increase the competition for the existing firms (Cramton & Ockenfels, 2016). As per the above graph, under the monopoly competition, the entry of new businesses can be restricted
In concern of GFC, it is determined that the use of fiscal policy measures in concern of the GFC has provided greater importance for a discretionary fiscal policy like a countercyclical tool (Caprioli et al., 2017).
This tool has been advised that at the time of crisis, the fiscal policy was defined as the ‘sleeping beauty’ moment along with the conventional momentary policy continuously reaching its limits as well as along with the financial system that has been experiencing acute issues (Williams, 2016).
In this manner, the forgotten tool related to discretionary fiscal policy was determined as the ‘rediscovered’ like a way to support the aggregate demand.
In addition, countercyclical discretionary fiscal policy is required by the government for managing its budget deficits while recessionary period as well as the surplus accumulation at the time of growth cycles.
It works as per the AD/AS model in which a relationship between aggregate demand and supply and aggregate supply is examined (Bova et al., 2018).
In 2014, the employment rate was increasing to 6.4% rapidly in July and due to this the Australian economy was going to be weaker and the RBA required taking the decisive decision for supporting the economy. Because of this, the Australian economy was working to the full employment (Perry & Rowe, 2015).
On the basis of the above diagram, it can be mentioned that Australian economy had to face the issues and it was in the phase of contraction of the business cycle in which country’s growth was decreasing as well as the economy was also slow down (Blackmore et al., 2017).
The fiscal policy that is pursuing by the government in Australia, is an expansionary policy that is focusing on improving the growth of the economy by high government spending and teases taxation (King, 2016).
On the basis of the AD/AS model, the government of Australia has the intention to reduce the deficit by decreasing the appending and increasing the more taxation which indicates a contractionary fiscal policy.
In respect of AD/AS model, it can also be mentioned that it is appropriate for the given state of the economy as the Australian economy is based on the medium-term framework which ensures that the budget is balanced over the cycle. Due to this, the aggregate demand and aggregate supply are maintained (Miller & Hayward, 2017).
In this, it is determined that reserve bank is responsible for Australia’s momentary policy in which setting the interest rate in relation to overnight loans under the money market is included (Lowe, 2017.
In this way, the cash rates enhance the other rate of interests under the economy that affects the borrower’s behavior and the leaders, economic practices and the finally the rate of inflation.
Moreover, the AD/AS model also supports that the monetary policy has a greater influence on the economy as it makes the changes within the money supply as well as availability or credit (Lin & Cheng, 2016).
On the basis of above, it can be mentioned that in case of contractionary monetary policy, the price of money in the economy decreases that leads the reduction in the nominal output and identified as Gross Domestic Product (Lowe, 2017).
Instead of this, in case of expansionary monetary policy, the money supply is increased under the market through purchasing the government bonds that pumps the money under the market.
There is the greatest indirect impact of the exchange rates movement and it arises due to the prices of the Australians as well as overseas goods/services and affects the activities of economy and the inflation in Australia.
In this way, if the Australian dollar depreciates then there is need for less foreign currency for purchasing a given amount of Australian dollar (Ballantyne & Langcake, 2016).
In this way, it also affects the Australian produced goods and services as these are available at cheaper prices. In addition to this, if inflation raised by 4% and the unemployment raised by 7% in 2015, then the suggested fiscal policy is Expansionary Fiscal Policy in which people of the country get the more power of purchasing because they have more money to be spent.
As per the aggregate demand and aggregate supply, Expansionary Fiscal Policy will help to increase the output under the economy due to an increment in aggregated demand. In this way, if the government decreases the taxes, then there are the chances that business and individuals use this tax amount to purchase more goods and services (Purnell, 2018).
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