Question

Part 1

Changes in macroeconomic indicators can often be of relevance to business decision-making. For instance, changes in macroeconomic performance reflected in indicators can impact things such as firms profit forecasts, expected sales growth, expansion plans, etc.

Assume you are employed as a business analyst with the large Australian based mining company. Identify and discuss how each of the following macroeconomic issues may be relevant to the firm:

a) A world-wide economic slow-down.

b) Appreciation of the Australian dollar relative to other major currencies.

c) The government abolishes subsidies to the mining industry.

At the end of your answer to Part 1 state the combined word count for sub-parts a,b and c. Your answer to Part 1 should not exceed 150 words.

(1.5 marks each plus 0.25 marks for satisfying word count requirements - Part 1 worth 4.75 marks)

Answer 1

Ans 1.

a).  A world-wide economic slow-down:

World-wide slow-down is indicative of a decline in industrial production. The decline in production affects profitability of businesses which forces them to cut back on costs by laying-off employees. There is also a decline in consumer spending as the real income of consumers falls. As the mining industry plays a key role in fulfilling the raw material requirements of firms in every sector of the economy, the slump in manufacturing activities affects the mining industry to a large extent. Also, the industry employs a large proportion of the population. The decline in productivity will also lead of loss of jobs as less workers will be needed at factories. Therefore, the Australian mining firm will experience decline in demand for its products and increased layoffs due to the slow-down.

b) Appreciation of the Australian dollar relative to other major currencies:

When the currency of a country appreciates, it becomes more expensive to export and cheaper to import. As imports enter the market, the demand for domestic goods falls due to increasing competition. For staying in the business, domestic firms have to cut back on costs for improving productivity. Hence, the Australian firm is likely to make plans for reducing overall costs of business for facing the anticipated surge in competition from imports.

c) The government abolishes subsidies to the mining industry:

Subsidies have the effect of reducing the costs of production for businesses which is passed on to the consumer in the form of lower prices. The removal of subsidy will increase the costs of production for the mining industry and impact profitability. Consumers will now be faced with higher prices than before due to which demand will decline for the products of the mining industry, impacting sales and hence, profitability.