Case Study Analysis

ECO100 Economics for Managers

Phillip Mules

Introduction

The purpose of this report was to analyze supply and demand, jobs and government intervention of the
Value of the Australian Dollar. Specific objectives were to identify the increase and decrease demands
of the Australian Dollar, and offer recommendations.
Problems were found in interest rates, inflation rates and imports and exports. The report recommends
findings in the Australian economy based on the rise and fall of the Australian Dollar.

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 Table of Contents

1. Introduction 1

2. Table of Contents 2

3. Case Study Analysis 3

1. Supply & Demand 3
2. Jobs 4
3. Government Intervention 5-6

3. Conclusions 7

4. References 8

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Supply and Demand
The affect and demand of the Australian Dollar.
If Australia’s economic growth rate is faster than its trading partners, imports will increase at a faster
rate than exports. As more Australian Dollars are supplied in the “forex” market to buy imports, the
further the Australian Dollar will depreciate.
Inflation rates for trading companies, for example, a higher inflation rate in Australia will reduce
international competition. Reducing the demand for exports, because they are more expensive.
Reducing the demand for the Australian Dollar. The greater demand for imports, because they will be
cheaper, will increase the supply of the Australian Dollar. These activities will depreciate the Australian
Dollar.
The difference between domestic & overseas interest rates. Example, if interest rates in Australia offer
a higher return to overseas investors than interest returns in their own economy, capital inflow will
result. Creating demand for the Australian Dollar in the market and its value will appreciate until the
interest rate parity with overseas interest rates. (Wallace, 2005)
Will supply increase or decrease? Why?
An increase in imports would result in an increase of the Australian Dollar. If the demand for the
Australian Dollar exceeds its supply, this will increase its price, which is known as an appreciation.
(Edge, n.d.)
Why?
If the Australian Dollar increases in value exports become expensive and overseas customers have to
find more Australian Dollars to buy the same volume of exports. (Edge, n.d.)
Will demand increase or decrease? Why?
An increase of demand for the Australian Dollar will cause the exchange rate appreciation. (Edge, n.d.)
Why?
If the Australian Dollar decreases in value, Australian exports become cheaper and imports become
expensive. This will help improve our international competiveness and will have an effect on the
economy. (Edge, n.d.)

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Jobs
The high Australian dollar is affecting areas of employment and jobs growth. In short Queensland
businesses are experiencing significant pressure, with more than half of Queensland businesses
changing practices due to their concern of decreasing competitiveness. Queensland businesses are
reducing manufacturing output, reducing staff, increasing their imports from cheaper overseas
markets, sourcing more products online and changing business strategy and target markets.
Exports becoming less competitive, decreased tourism and increased international competition for
retailers and import competing manufacturing. Manufacturing and tourism have taken the biggest hits,
with big drops in sales, visitor 27 percent indicated they have been negatively impacted through a
large drop off in tourism and 24 percent through increased international competition. (Impact of the
High Australian Dollar on QLD Businesses, 2015)
The low Australian dollar may sound like a bad thing, but it's actually good news – buying a
television could be more expensive but at least jobs will be easier to come by.
A lower dollar makes Australia more attractive to international tourists and encourages Aussies to
travel at home rather than abroad. Although prices of goods may go up for consumers, the economy
will be in better shape, which is good for everyone.
The structure of the Australian economy is going to be better, you'll have a lower jobless rate, stronger
growth and things will feel a bit better, which is what we've been missing in the past couple of years.
(What does a lower Australian dollar mean for consumers?, 2015)
What Other Factors Affect Jobs
Economic Factors
National job growth, recessions and the ability to look for employment could affect your worker
turnover and retention. For example, if the economic climate is doing well and jobs are flourishing, it
may be harder to retain employees if they have other, better job opportunities to assess. On the other
hand, if the economic climate is poor and national unemployment rates are high, it may be easier to
retain your employees since other job opportunities may be limited. Also, changes in consumer taste
can affect demand for the product or service your company provides, which could lead to layoffs or
mass hiring that could affect your company's employment rate.
Corporate Values
The corporate values that your company adheres to could impact your employment rate. If potential
employees, for example, hear negative stories in the press about the way your company treats
employees, this could affect your recruitment process and what type of candidate you are able to hire.
If your employees feel unappreciated or unmotivated to work for your company, this could also affect
employment in that these employees may leave for other ventures, or your company's production
levels could decrease and layoffs may need to take place.
Seasonal Fluctuations
According to the U.S. Bureau of Labor Statistics, seasonal fluctuations in certain industries can affect
employment. For example, if you own an agriculture or construction company, certain seasons may
call for an increase in employees as opposed to smaller necessary workforces during off-seasons.
Also, the BLS states that June typically sees large fluctuations in employment rates since droves of
students enter the labor force during this time "in search of summer jobs." (Vog, 2015)

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Government Intervention
Should The Government Intervene?
One of the main issues in economics is the extent to which the government should intervene in the
economy. Free market economists argue that government intervention should be strictly limited as
government intervention tends to cause an inefficient allocation of resources. However, others argue
there is a strong case for government intervention in different fields.
Arguments for Government Intervention
1. Greater Equality – redistribute income and wealth to improve equality of opportunity and
equality of outcome
2. Market Failure – Markets fail to take into account externalities and are likely to under-produce
public / merit goods. For example, governments can subsidize or provide goods with positive
externalities.
3. Macroeconomic intervention. – Intervention to overcome prolonged recessions and reduce
unemployment.
Arguments against Government Intervention
1. Governments liable to make the wrong decisions – influence by political pressure groups, they
spend on inefficient projects which lead to inefficient outcome.
2. Personal Freedom. Government intervention is taking away individuals decision on how to
spend and act. Economic intervention, takes some personal freedom away.
3. Market is best at deciding how and when to produce. (Should the government intervene in the
economy? | Economics Help, 2015)
Rationale for Government Intervention
The primary purpose of income support to the unemployed is to provide a minimum adequate standard
of living to people who are temporarily out of work and unable to support themselves through their
savings or other means. The rate of unemployment benefit attempts to balance adequacy of support
for people who are unemployed with the incentive for them to seek work and the cost to the
Commonwealth.
Unemployment benefits are also designed to ensure that people have adequate resources to search
for and obtain employment. (Audit, Australia, & sector=Government, 2013)
Australia should intervene quickly to avert a major rise in youth unemployment, says OECD
Young people are likely to be hit hard by rising unemployment as the global downturn continues. In
Australia, where more young people work than in most OECD countries, the government should
encourage more teenagers to stay in school past the age of 16 in order to boost their skills and
improve their long-term career prospects for when the economy recovers and labor demand picks up
again, according to a new OECD report. (Australia should intervene quickly to avert a major rise in
youth unemployment, says OECD, 2015)
Call for Government Intervention on Workplace Bullying
A new parliamentary report has been released into workplace bullying in Australia.
A parliamentary report about workplace bullying in Australia has recommended the Federal
Government establish a new national advisory service to provide advice, assistance and resolution
services to employers and workers.
The report is released by the Australian Parliament Standing Committee on Education and
Employment, which heard more than 300 submissions from organisation’s and employees about the
human toll that workplace bullying takes.

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The report says the chief concern of witnesses was the lack of clarity about what to do and where to
go for help.
It contains 23 recommendations including the adoption of a new national definition of ‘workplace
bullying’, a workplace bullying ‘hotline’ and a legislative and regulatory framework. (Call for
Government Intervention on Workplace Bullying, 2015)
What Can It Do?
Fairness. In a free market, inequality can be created, not through ability and handwork, but privilege
and monopoly power. Without government intervention, firms can exploit monopoly power to pay low
wages to workers and charge high prices to consumers. Without government intervention, we are
liable to see the growth of monopoly power. Government intervention can regulate monopolies and
promote competition. Therefore government intervention can promote greater equality of income,
which is perceived as fairer.
Inherited wealth. Often the argument is made that people should be able to keep the rewards of their
hard work. But, if wealth and income and opportunity depend on being born in the right family, is that
justified? A wealth tax can reduce the wealth of the richest and this revenue can be used to spend on
education for those who are born in poor circumstances.
Rawls Social Contract. Rawls social contract stated that the ideal society is one where you would be
happy to be born in any situation, not knowing where you would end up. Using this social contract,
most people would not choose to be born in a free market because the rewards are concentrated in
the hands of a small minority of the population. If people had no idea where they would be born, they
would be more likely to choose a society with a degree of government intervention and redistribution.
Public Goods. In a free market, public goods such as law and order and national defense would not
be provided because there is no fiscal incentive to provide goods with a free rider problem (you can
enjoy without paying them). Therefore, to provide public goods like lighthouses, police, roads, etc. it is
necessary for a government to pay for them and out of general taxation.
Merit Goods / Positive Externalities. Goods like education and health care are not strictly public
goods (though they are often referred to as public goods). In a free market, provision tends to be
patchy and unequal. Universal education provided by the government ensures that, in theory,
everyone has the opportunity to gain an education, which has a strong social benefit.
Negative Externalities. The free market does not provide the most socially efficient outcome, if there
are externalities in consumption and production. For example, a profit maximizing firm will ignore the
external costs of pollution through burning coal. This leads to a decline in social welfare. By contrast
other forms of energy production, like solar power, are environmentally friendly and have a positive
externality. By taxing production which causes pollution costs and using the subsidy to encourage
other forms of energy production, there is a net gain in social welfare.
Regulation of Monopoly Power. In a free market, firms may gain monopoly power, this enables them
to set higher prices for consumers. Government regulation of monopoly can lead to lower prices and
greater economic efficiency. (Should the government intervene in the economy? | Economics Help,
2015)

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Conclusion

The supply and demand of the Australian dollar shows that interest rates will reduce international
competition, reducing the demand for imports, interest rates offering a higher return will attract capital
inflow. Increasing imports will result in the increase of the Australian dollar. Increasing the Australian
dollar, exports become expensive and the customers need to find more Australian dollars to buy the
same volume of exports. Decreasing the Australian dollar, exports become a lot cheaper and imports
become expensive helping international competiveness.

The high Australian dollar has an effect on the employment and jobs growth. Businesses are reducing
manufacturing outputs, reducing staff and increasing their imports from cheaper overseas markets.
Thee low Australian dollar is actually great news as buying products maybe expensive but jobs will be
a lot easier to obtain.

Economic factors, corporate values and seasonal fluctuations all contribute to affecting employment
opportunities and jobs

Government interventions can be a good thing or a bad thing, macroeconomic interventions can
overcome recessions and reduce unemployment, governments making the wrong decisions on
inefficient projects leading to inefficient outcomes.

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 References

Audit, c. G., Australia, j. o., & sector=Government. (2013). National Commission of Audit. Retrieved
from http://www.ncoa.gov.au/report/appendix-vol-1/9-11-unemployment-benefits-minimum-
wage.html
Australia should intervene quickly to avert a major rise in youth unemployment, says OECD. (2015).
Retrieved from oecd:
http://www.oecd.org/australia/australiashouldintervenequicklytoavertamajorriseinyouthunemplo
ymentsaysoecd.htm
Call for Government Intervention on Workplace Bullying. (2015). Retrieved from
http://www.probonoaustralia.com.au/news/2012/11/call-government-intervention-workplace-
bullying#
Edge, K. (n.d.). Economics. Retrieved from hsc.csu.edu.au: http://hsc.csu.edu.au
Impact of the High Australian Dollar on QLD Businesses. (2015). Retrieved from
http://www.pjtaccountants.com.au/topics-australian-government-budget/impact-of-the-high-
australian-dollar-on-qld-businesses
Should the government intervene in the economy? | Economics Help. (2015). Retrieved from
http://www.economicshelp.org/blog/5735/economics/should-the-government-intervene-in-the-
economy/
Vog, C. (2015). What Factors Impact Employment? Retrieved from smallbusiness.chron:
http://smallbusiness.chron.com/factors-impact-employment-20026.html
Wallace, D. (2005). HSC Economics. Sydney: Pan Macmillan Australia.
What does a lower Australian dollar mean for consumers? (2015). Retrieved from
http://www.smh.com.au/business/markets/currencies/what-does-a-lower-australian-dollar-
mean-for-consumers-20150109-12kyx4.html

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