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Economics - Question 1

a. When looking at the economics of movie making, it is seen that some blockbusters are generating significant revenue over past few years. The potential of making money these years is very unique since, there are multiple releases, spin-off television franchise. Also, revenues in this industry are also created with the help of consumer products like cups, mugs, T-shirts etc. It is ingrained in the minds of film students who are in film schools and industries that this film business is sustainable.

It is seen that Amazon and Netflix are becoming the saviours of the mid-sized movies. Basically, Amazon and Netflix have unlimited money. There are movies like Manchester by the sea which are not with high budget. So, they are not financed by the big figures like Disney, Paramount or Warner Brothers. Since, the motivation of Amazon and Netflix are different, they do not care about the profitability of an individual film (Baranchuk et al., 2019). They only want people to subscribe to their platforms. Thus, they spend a lot on movies and expect a couple of them to be successful

Thus, we can say that there would be continued success over the next couple of years. Also, due to continued increase in income of the population, their purchasing power is increasing (Weinberg et al., 2020). They are foregoing income for more leisure time. Hence, the demand and popularity of these industries will rise in the coming years.

b. With an increase in popularity in the film industry over the coming years, will simultaneously lead to increase in prices in these industries. This increase in prices will be shifted towards the viewers of the film industry (Luo et al., 2019). Since, the viewers who are addicted towards this industry due to their habits and preferences will not mind paying more for watching these movies.

Therefore, the inelastic demand of the film industries will lead to rises in prices. The consumers will pay the extra premium charged to continue to watch these movies due to the above mentioned reasons.

Economics - Question 2

a. Australia has seen a fall in the retail market in 2019. This was due to the slump in the retail spending (Sarker, 2020). This industry was also affected by the problem of employee underpayments and many retailers were forced to shut their businesses due to the change in the consumer behaviour.

This was all due to the owners of American-style shopping malls who have wielded the power over retailers ruthlessly.

In 2020, after the pandemic of Covid-19, the pressure on the retailers to be pertinent in the eyes of the consumers, have been more stronger. As sustainable retailing has taken importance, the customers shops in a different manner and value the things differently (McKibbin & Fernando, 2020). However, the retail industry has the power to adapt itself according to the changing needs of the consumers, it is a challenge that how with the pandemic Covid-19, the retailers will continue to adapt and look for the opportunity to differentiate themselves and target the consumers.

While after this pandemic, the retailers are facing losses due to the complete shut down of the businesses. This includes the malls, apparel stores and other retail shops.

After the pandemic, the retail sector will turn into a demand driven market. This crisis will transform the fundamentals of the business. The correction will take place for the capacities of supply chain and retail space that are in excess. The output will be determined by the effective demand of the consumers.

b. The impact of corona virus will weigh heavily on the economy of Australia. This will feed through demand and the pricing of goods and services in Australia.

There will be potential fallout from corona virus on the many businesses in Australia. This includes discretionary retailers and their landlords such as Vicinity centres, Westfields etc.

Economics - Question 3

There is a change in the unemployment rate from 5.2% to 6.2% in Australia. Unemployment rate can be defined as the total number of unemployed individuals in the total workforce. Unemployed individuals can be further defined as individuals who are willing and capable to work are not getting jobs. On the other hand, underemployment can be defined as a situation where the worker is doing part time or is idle and the job does not use the worker’s skills. It refers to the under-utilization of the labour force.

Unemployment Rate ( % ) = No. Of Unemployed /Total Workforce

It is seen that Australians take hard line on the responsibilities of the unemployed people to actively seek work. Also, a majority of the population of Australia opposes the greater public expenditure for the unemployed, while they still believe the role of the government in addressing the problem of unemployment and the unemployed people.

Around 6,00,000 jobs are lost in Australia due to corona virus pandemic. Thus, the unemployment rate jumped to 6.2%. The seasonally adjusted employment is falling in Australia. The unemployment and underemployment increased as the pandemic hits Australia.

Although, this change is not a complete reflection of the unemployment rate. Since, government has shut down few non-essential businesses. If they are opened, it can lead to increase in employment.

Economics - Question 4

The COVID-19 pandemic has sent the growth and GDP of Australia tumbling down. There is a sharp decline in the growth rate and the unemployment rate has increased exceptionally (Walmsley et al., 2020). The lockdown is imposed by most of the countries in the world. There is reduction in the production, and hence total output is decreased.

The outbreak of Covid-19 is having an adverse effect on the economy and financial systems. It is the priority of central bank of Australia to support the business entity and households as well as the jobs of many people (Andersen et al., 2020).

The Reserve bank of Australia has taken various steps as a comprehensive package in order to lower the cost of funding and smooth supply of credit to the economy. To boost the cash flow of business and household, the Reserve Bank of Australia or RBA has reduced the interest rate by 50 basis points to an unprecedented low level of 25 basis points (Hale et al., 2020). The move has been taken to inject liquidity in the economy. This also led to a negative impact on the people who earn through interest income. But it is expected that the overall impact of reduction will benefit the economy as a whole.

To help to lower the cost of funding the Reserve bank of Australia has set a target on government bonds and its yields of 0.25 percent (Coates et al., 2020). To lower the cost of credit to various sectors of economy, term funding facilities are provided for the banking system.

It is also important that the financial system of the economy system remains stable. The Reserve bank of Australia has also given liquidity to them through its daily market operations. This is to help the smooth functioning of Capital markets of Australia.

The Reserve bank is checking on the demand of Bank notes and is supplying in a ample amount. This is to avoid the temporary shortages due to short term increase in the demand (Chakraborty & Thomas, 2020).

The above figure shows that the output and price of an economy with the expansionary monetary policy adopted by the Reserve bank of Australia in response to the outbreak of Covid-19. D1 and D2 shows aggregate demand curves and S1 is the aggregate supply curve. The aggregate demand curve shifts from D1 to D2.This is in response to the increase in consumer spending due to increase in liquidity. The output of an economy rises from Q1 to Q2. However the price also rises from P1 to P2. Therefore although the expansionary monetary policy led to an increase in output but it also worsens the problem of inflation.

Economics - Question 5

A comprehensive package is taken by the government of Australia in response to the outbreak of Covid-19. The government has acted in favour of the interest of the households and businesses (Zhou et al., 2020). Many direct fiscal measures are taken which is around 6.9 percent of the GDP. In order to help the lower income people of

Australia the government is providing important payments like pension and other securities. The government is providing income support payments (Bianchi et al., 2020). These different types of payments by the government will increase the confidence and the domestic demand in the economy.

The government also took steps in view to boost the liquidity of the businesses, it is giving cash flow support to the small and medium sized businesses (Chang et al., 2020). By boosting the cash flow for employers and providing temporary relief to financially distressed businesses, the government is increasing the confidence of businesses. This is leading to retaining of the Staffs by the enterprises and helps them to keep operating.

The government along with the other Government authorities have took steps to ensure the maintaining of credit in the Australian economy. This is because timely credit is very important for any business to cope up with the crisis. The government is also providing 50 percent guarantee to the SME lenders to help the SMEs with short term unsecured loans. This will further increase the willingness of the lenders to provide loans to the SMEs.

Various measures taken by the government also includes sizeable wage subsidy. Targeted measures are taken for affected regions and industries. To help business investors in economic growth, the government has started a time-limited 15 month investment incentive (Hale et al., 2020). This step is taken to support business investment and it is predicted that this will reduce the taxes payable by the businesses.

Payroll tax relief, discount utility bills, payments to the vulnerable households and aid for health spending are also introduced by the state and territory governments.

This all measures are targeted to boost the economy and confidence of the Australians.

The above figure shows output and prices of the economy. After the measures taken by the treasury, there will be a push in the demand in the economy. The aggregate demand curve will shift to the right from D1 to D2.This shift will be due to the rise in consumer spending. This shift will lead to an increase in the output of the economy from Q1 to Q2 and also rise in the prices from P1 to P2. Although, the quantity demanded rises but the price increase would worsen the problem of inflation.

References for Economics

Andersen, A. L., Hansen, E. T., Johannesen, N., & Sheridan, A. (2020). Consumer responses to the COVID-19 crisis: Evidence from bank account transaction data. Available at SSRN 3609814.

Baranchuk, N., Seetharaman, S., & Strijnev, A. (2019). Revenue Sharing Vertical Contracts in the Movie Industry: A Theoretical Analysis. Review of Marketing Science, 17(1), 81-116.

Bianchi, F., Faccini, R., & Melosi, L. (2020). Monetary and Fiscal Policies in Times of Large Debt: Unity is Strength (REVISED May 2020).

Chakraborty, L., & Thomas, E. (2020). COVID-19 and Macroeconomic Uncertainty: Fiscal and Monetary Policy Response (No. 20/302).

Chang, S. L., Harding, N., Zachreson, C., Cliff, O. M., & Prokopenko, M. (2020). Modelling transmission and control of the COVID-19 pandemic in Australia. arXiv preprint arXiv:2003.10218.

Coates, B., Cowgill, M., Chen, T., & Mackey, W. (2020). Shutdown: estimating the COVID-19 employment shock. Working paper, Grattan Institute, Melbourne, VIC, Australia.

Hale, T., Petherick, A., Phillips, T., & Webster, S. (2020). Variation in government responses to COVID-19. Blavatnik School of Government Working Paper, 31.

Luo, H., Macher, J., & Wahlen, J. M. (2019). Judgment Aggregation in Creative Production: Evidence from the Movie Industry. Harvard Business School Strategy Unit Working Paper, (19-082).

McKibbin, W., & Fernando, R. (2020). The economic impact of COVID-19. Economics in the Time of COVID-19, 45.

Sarker, P. (2020). COVID Crisis: Fiscal, Monetary and Macro-financial Policy Responses. Monetary and Macro-financial Policy Responses (May 8, 2020).

Walmsley, T., Rose, A., & Wei, D. (2020). Impacts on the US Macroeconomy of Mandatory Business Closures in Response to the COVID-19 Pandemic. Available at SSRN 3570117.

Weinberg, C. B., Otten, C., Orbach, B., McKenzie, J., Gil, R., Chisholm, D. C., & Basuroy, S. (2020). Technological change and managerial challenges in the movie theater industry. Journal of Cultural Economics, 1-24.

Zhou, X., Snoswell, C. L., Harding, L. E., Bambling, M., Edirippulige, S., Bai, X., & Smith, A. C. (2020). The role of telehealth in reducing the mental health burden from COVID-19. Telemedicine and e-Health, 26(4), 377-379.

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