Its an exam, same as my friend Kamlesh gave you
1 Official Final Exam Subject Title Economics for Business and Finance Subject Code ECO600 Lecturer/Tutor Dr. Hemanath Swarna, Dr. Yiling Zhang, Dr. Carolyn Tran Trimester February 2020 Assessment Title Official Examination Learning Outcomes All of them Assessment Type Individual Weighting 40% Word Count Maximum 2,000 words Due Date Week 15, 11:59 pm, 12 June 2020 (Friday) Submission Turnitin Submission Type MS Word document Final Examination Instructions Instructions to Examination Candidates 1. Please answer ALL four (4) sections. Each section contains short-answer questions, with sub-questions. Each section is worth 10 marks (total: 40 marks). Section 2 has no word limit, but students are expected to keep it brief. Sections 1, 3 and 4 have a word-length target of 300- 500 words. 2. Students are expected to answer the question in BULLET POINT style, and not in the style of long paragraphs. 3. Write CLEARLY. Make it easy for your lecturer to read and understand you. 4. DO NOT REWRITE the exam questions in your answer document. Only include the section, question and sub-question numbers with your answers. 5. Please begin your answers for each section ON A NEW PAGE, with a heading at the top that states the section number (e.g., ‘Section 1’ or ‘Section 2’). 2 Section 1: International trade and exchange rates (10 marks; length: 300-500 words) The country you will focus on throughout this section is Indonesia. Indonesia’s textile and leather footwear industry used to export a lot of shoes in the 1990s and 2000s. But it has faced tough competition from lower-cost producers in Vietnam and China. The government is considering protecting the industry from the full effects of free trade. 1. Suppose this country has decided to protect the mentioned industry. (i) What trade protectionist policy (or policies) would you propose? (ii) Justify your action: discuss how it will benefit the industry or country (iii) What problems could arise from implementing it? How will you address the problems? (4 marks; 150-200 words) 2. See Trading Economics (click here for the website). In the list, find the country’s name (the country in the case study above). Click on it. To view the trade balance for multiple years, set the chart’s duration to ‘25Y’ (25 years) or ‘Max’. (i) Comment on the country’s trade balance over the last several years— for example, is there a trend towards a surplus or deficit? (ii) Assume that this country reduces its official interest rates to lower levels than the USA does. All else remaining the same, will this country’s currency appreciate or depreciate versus the US dollar? Could it make this country’s exports more attractive or not? (2 marks, 50-100 words). 3. See Harvard University’s Atlas of Economic Complexity (click here for the website). - Enter the country name (the same country you examined above). - Jump to the section on the page called ‘Economic Structure’. There click on and examine the country’s ‘Export basket’ (the products it exports). - Then, click on and examine the country’s ‘Export complexity’ (how complex or high- value its export products are). Develop a convincing new export plan. (i) Propose the export sectors or products whose complexity you feel could be improved. Argue why. (ii) How should those sectors or products be improved, in terms of complexity and value- added, so that they are globally competitive and can increase the country’s export earnings? (4 marks; 150-200 words). https://tradingeconomics.com/country-list/balance-of-trade https://atlas.cid.harvard.edu/countries 3 Section 2: Macroeconomic fundamentals and development economics (10 marks; length: no word limit— keep it brief) The COVID-19 pandemic and lockdown has affected the Australian economy in many ways. 1. Discuss how they might have affected each of the four components of Australia’s GDP (also known as aggregate demand, AD), other than government spending, G. (2 marks) 2. Assess which of the three main types of unemployment might COVID-19 lockdowns be causing the most. Explain why. (2 marks) 3. COVID-19 has affected both AD and aggregate supply (AS). (i) Draw a simple AS and AD diagram to show how they might have shifted. Draw in MS Word or draw on a piece paper, photograph, and paste the image in your answer document. (2 marks) (ii) Based on the diagram, comment on how GDP and the inflation rate would have changed. (2 marks) 4. For 2020, Australia’s inflation rate is expected to be 1.43%. If a loaf of bread in the supermarket was A$4 at the start of 2020, what will its price be at the end of 2020? Show your workings by typing it, or by writing it on a piece of paper, taking a photograph of it, and pasting it in your answer document. (2 marks) 4 Section 3: Development economics (10 marks; length: 300-500 words) You are the newly elected prime minister of the Southeast Asian country Cambodia. Cambodia is a Buddhist, low-middle-income country with a GDP of between US$20-30 billion. Its GDP growth was rapid: 8% each year of the last decade. Still, the GDP’s size is $5 billion smaller that Nepal’s and a tenth (1/10th) of neighbour Vietnam’s. The same leader has been its prime minister for 35 years. Its population is 16 million. Of that, almost 5 million people are ‘near-poor’, meaning although above the poverty line, are vulnerable to becoming poor again if there are economic and other shocks (like COVID-19). Though its capital city has shopping malls, nearly 80% of the population live in rural areas. Only 57% of its population finish secondary education (high school); a quarter do not have good access to water; a third do not have access to good sanitation (toilet and sewage). The economy was once almost entirely agricultural. Though less dependent on it, agriculture still makes up a quarter of its GDP. It mainly produces rice. Half the country is forest. Most of its economy is reliant on (i) exporting simple garments (women’s wear, men’s t- shirts, sweaters) and (ii) tourism. The garment factories are largely owned by foreign corporations. Its tourists are mostly Chinese, Vietnamese and Thai. Unemployment is officially ‘low’. But many Cambodians are actually ‘underemployed’: they have jobs that could be easily lost, or work for their family or are farmers but have no salary. The shock of COVID-19 has today severely affected its economy. Tourist arrivals has dried up, as has demand for its clothing exports. Can Cambodia be developed into a better economy of the future? Can it be a prosperous model for other developing countries? 1. Outline a development plan for Cambodia. Do not only propose clever ideas. Discuss also some of the challenges in implementing them, if possible. A prime minister like you should be realistic and balanced. To generate ideas, use: (i) the five structural changes to boost development (ii) the list of internal and external barriers to development that needs to be overcome (iii) ideas from the Youtube video (click here) on ‘premature deindustrialisation’, where several ‘development models’ are described— could it adjust its export- oriented model, or use or combine it with other growth models? (iv) ideas from the Youtube videos you watched about how Japan and South Korea developed from being poor, rural societies. (10 marks; 300-500 words) https://www.youtube.com/watch?v=xsAjHzAGZDU 5 Section 4: Fiscal, monetary and supply-side policies (10 marks; 300-500 words) Pakistan is a low-income country with a population of around 200 million and an annual GDP of about US$300 billion. Literacy rates are low: only 59% of its people can read or write (mostly in the cities). Women get discriminated against, and only 26% of them are participating in the labour force and getting paid. There is also income inequality. The very small proportion of the urban rich live lavish lifestyles, and easily spend on sports cars, whereas most people survive with small incomes. Compared to Australia’s 10% GST tax, Pakistan’s is 17%. This sales tax on buying things could burden the bulk of its citizens, who are low-income earners. Pakistan’s infrastructure is inadequate and poorly maintained. This raises business costs: domestic companies cannot make, transport and export its products cheaply. They struggle to compete with exporters in India and China, its neighbours. Table 1 shows some key economic measures for Pakistan in the last 12 quarters: Table 1: Quarterly GDP growth, unemployment and inflation rates, PMI, as well as government-debt-to-GDP ratio (generally accurate but modified for this exam). Year 2017 2017 2017 2018 2018 2018 2018 2019 2019 2019 2019 2020 GDP growth rate (%) 4.5 3.5 2.5 -0.5 3.5 4.5 4.6 4.7 4.2 2.0 1.5 -2.0 Unemployment rate (%) 3 3 3 3 5 6 4 3 3 6 7 7 Inflation rate (%) 2 2 2 2 2 3 3 3 3 3 1 1 Purchasing managers index (PMI) 52 54 51 53 54 54 52 52 42 45 45 46 Government debt-to-GDP ratio (%) 68 68 68 72 72 72 72 77 77 77 77 77 Fiscal policy and supply-side policy 1. You are the finance minister of Pakistan. Your ministry officials show you Table 1. They advise you to implement fiscal policy. (i) Briefly: will you implement contractionary or expansionary fiscal policy? Why? Discuss in detail: what specific fiscal policies will you implement? Creatively use the two tools that governments can use for fiscal policy to devise a clever but realistic plan. Refer to the country’s economic profile and table for hints. In addition to your fiscal policies, provide one supply-side policy (write ‘SSP’ next to it so that I know). (4 marks; 150-200 words) (ii) What is a limitation to the effectiveness of your fiscal policy? (1 mark) 6 Monetary policy 2. Given the same situation: (i) Would this country’s central bank try to increase, decrease or maintain its official interest rates? Why do you say that? (20-50 words) (ii) How will its central banks change the interest rate (clue: it involves using bonds)? (20-50 words) (iii) Assess how that action will affect each of these (50-100 words): (a) consumer spending and business investment (b) GDP growth (c) unemployment (d) inflation (5 marks)