Question 1

The Australian economy is stagnating, and economic indicators are pointing towards recession.

As the Economic advisor to Credit Experience Pty Ltd you are required to brief other associates of the business as to what two(2) possible responses the Federal Government could adopt to arrest the current slide of the Australian Economy and their l likely impact on the Financial Services Industry.

The government could respond with two economic theories:

Neo- Keynesian or Supply-side Economics.

a. Outline the main arguments of each of these two theories.

b. According to supply-side economists, how are assets valued? Refer to value theory in your response.

c. According to Keynes how are assets valued?

d. Explain how each of these responses would impact differently on the Financial Services Industry.

Question 2

Credit Experience provide personal budgetary advice to retireed clients. A number of clients are concerned that they are experiencing financial deficits at the end of the financial year and require a more accurate and considered outcome.

You recognise your forecasts could be improved if you adopt a number of economic principles into your work practices.

a.Outline how incorporating the following two (2) economic principles that may improve your forecasts and provide a more accurate outcome for the clients:

• Impact of inflation
• Changes in Monetary Policy (interest rates)

b. With Australia experiencing low inflation and low interest rates your employer requests that you contribute to a newsletter for clients which explains the relationship between inflation and interest rates. In your response distinguish between nominal and real interest rates and refer to the Fisher Effect. Use figures to assist the clients understanding of the relationship