Section A: Microeconomics

Question 1 The Australian government has a four pillars policy for the banking sector in Australia. Basically, the policy means that the four largest banks in Australia (the "Big 4") are not allowed to merge with each other. Using your own independent research, briefly explain the reasons for this policy, and the advantages and disadvantages of this policy.

Question 2 Identify the market structure the Big 4 banks operate in. Justify your choice of market structure using the market characteristics used to classify markets. Explain how the Big 4 banks compete, and the nature of their interdependency.

Question 3 Consider a "game" between Commonwealth Bank (CBA) and ANZ Bank (ANZ) that the banks may participate in. The rules of the game are:

If both CBA and ANZ keep interest rates low, then they will both make a profit of $2.5b.

If both CBA and ANZ keep interest rates high, then they will both make a profit of $3.5b.

If one bank keeps interest rates low and the other keeps interest rates high, then the low interest rate bank will make $4.0b profit and the high interest rate bank will make $2.0b profit.

Using these rules, solve this game for the Nash equilibrium (make sure to include your diagram and the logic you followed to solve the game). Is your outcome the best one for both CBA and ANZ? Explain your answer.

Section B: Macroeconomics

Question 1 The pandemic has disrupted supply chains around the world, and particularly in the United States. Using your own independent research, explain what the supply chain is, its importance in the American economy and the global economy, and why the pandemic has disrupted it.

Question 2 Draw a diagram of the American economy using the aggregate demand and aggregate supply (AD/AS) model before, and then after the supply chain disruptions due to the pandemic. Clearly show on your diagram(s) the before and after effects for the key macroeconomic variables and fully explain how they have been impacted. Is the actual experience in the US consistent with your diagram? Explain your answer.

Question 3 The American Government is aware of the sensitivity of the economy to supply chain issues and has initiated a response. Using your own independent research, explain the actions the American Government has undertaken to combat the economic impact of the supply chain disruptions. Using your diagram from Question 2, show how the government action might impact the American economy. How successful do you think the government action is/will be?