DPECO 2025 Kohler Report Week 5 (20/2-26/2)

Australian unemployment has only slightly increased to 4.1%, despite falling living standards and economic pressures. Which of the following could best explain the labor market's resilience?

• A surge in labor force participation, particularly from women, has offset job losses, keeping the overall unemployment rate stable.

• The labor market always lags behind economic conditions, so unemployment is expected to increase sharply in the near future.

• High unemployment is only a problem during recessions, so the current figure is not relevant to economic analysis.

• The central bank directly controls employment levels, keeping the unemployment rate stable.

Rio Tinto and Fortescue Metals reported weaker profits due to lower iron ore prices, driven by China’s economic slowdown. How does China’s economic performance impact Australia’s mining sector?

• China is a major consumer of Australian iron ore, so a slowdown in China reduces demand and lowers prices.

• Australia is a self-sufficient economy, meaning that changes in Chinese demand have no effect on Australian exports.

• A decline in Chinese demand for iron ore increases Australian mining profits, as there is less competition in global markets.

• Exchange rate fluctuations are the only factor affecting iron ore prices, not Chinese economic conditions.

Australia financial markets initially expected further interest rate cuts but adjusted their expectations after the Reserve Bank governor signaled that additional cuts were unlikely. How might this shift in expectations impact business investment and consumer confidence in the short term?

• The change in expectations will have no impact on investment decisions, as monetary policy only affects inflation, not business confidence.

• Consumer spending and investment will immediately increase, as businesses prefer stable interest rates over continuous rate cuts.

• Businesses and consumers may become more cautious, as they had anticipated lower borrowing costs to support spending and investment.

• The adjustment in expectations will lead to an automatic decline in unemployment, as businesses hire more workers in response to the news.

The RBA Governor Michelle Bullock conceded that the central bank may have been too slow in raising interest rates when inflation began rising. Given this, which of the following best explains the potential opportunity cost of delaying rate hikes?

• The central bank has no control over inflation, so delaying interest rate hikes had no real economic impact.

• Raising interest rates earlier would have immediately lowered inflation to the target range, avoiding any financial pain.

• The RBA’s delay in raising rates increased aggregate supply (AS), helping reduce inflationary pressures in the long run.

• Delayed rate hikes may have led to higher inflationary expectations, requiring more aggressive monetary tightening later, causing greater economic hardship.

The Australian dollar rose to 64 US cents, its highest level in two months, following a big jump in iron ore prices. How does a rise in iron ore prices typically affect the Australian dollar?

• A rise in iron ore prices reduces Australia’s terms of trade, leading to depreciation of the Australian dollar.

• The exchange rate is set by the Reserve Bank of Australia (RBA), so iron ore prices have no impact.

• Higher iron ore prices increase demand for Australian exports, leading to a stronger exchange rate as more Australian dollars are needed in global trade.

• A stronger Australian dollar always leads to lower exports, meaning iron ore price increases do not affect the currency.

Domain and Main Pharma received large takeover bids from US companies, leading to a surge in their share prices. From an economic perspective, how might increased foreign ownership of Australian firms impact the domestic economy in the long run?

• Increased foreign ownership leads to currency depreciation, making Australian exports less competitive in global markets.

• It may lead to greater capital inflows, potentially increasing investment, employment, and productivity in the Australian economy.

• Foreign takeovers always reduce economic growth, as profits are sent overseas rather than reinvested in Australia.

• Foreign direct investment (FDI) results in higher inflation, as foreign firms set higher prices for domestic consumers.

Richard White retained control of WiseTech despite opposition from other shareholders due to his large shareholding. Which of the following is a valid concern about highly concentrated ownership in a firm?

• Perfect competition is achieved when one shareholder controls a large share of a firm, as decisions can be made quickly and efficiently.

• A firm with a dominant shareholder will always operate as a monopoly, regardless of market conditions.

• Concentrated ownership reduces barriers to entry, leading to increased competition in the industry.

• Concentrated ownership can reduce efficiency if decision-making prioritizes the interests of a dominant shareholder rather than broader market competition.

Oil prices fell by 2.8%, but the Australian dollar appreciated slightly. Given that Australia is a major commodity exporter, what could explain why the Australian dollar did not depreciate despite falling oil prices?

• A fall in oil prices automatically increases demand for Australian exports, leading to an appreciation of the Australian dollar.

• Other factors, such as changes in interest rate expectations, trade balances, or global investor sentiment, may have had a greater influence on the exchange rate.

• The exchange rate is fixed by the Reserve Bank of Australia, meaning that external factors like commodity prices have no impact.

• The value of the Australian dollar is entirely dependent on iron ore prices, so oil price changes do not affect the currency.

80% of Australian firms have reported earnings, with 50% exceeding expectations. From an IB Economics perspective, why might better-than-expected business earnings indicate a positive short-term economic outlook?

• Higher business earnings may reflect stronger consumer and investment demand, contributing to an increase in aggregate demand (AD) and economic growth.

• Business earnings are unrelated to aggregate demand, as they are independent of household consumption, investment, and government spending.

• Higher corporate earnings always lead to higher inflation, requiring immediate intervention from the central bank.

• Positive business earnings only impact the financial sector, without affecting real GDP or employment levels.

During company reporting season, some companies reporting lower-than-expected profits faced large share price declines, with investors reacting strongly to negative earnings results. Which factor is most relevant in explaining why some firms are facing declining profits despite increasing revenue?

• Higher costs of production, such as rising wages and raw material costs, may be reducing firms' profitability despite increased sales revenue.

• Perfect competition ensures that firms always earn normal profits, so declining profits must be due to government regulations.

• evenue is always equal to profit, meaning that companies with higher sales should always see higher profitability.

• Consumer demand for goods and services is fixed, so changes in profitability cannot be explained by market forces.