Multiplier in three sector economy

Quantitive Analysis

Authentic Assignment

Marks: 40

Due: Friday, Week 11, 11.59 PM

INITIAL INSTRUCTIONS:

1. This assignment consists of one practical application with eight aspects to your report. 2. Ensure this assignment, and the related dataset corresponds to your enrolled lecture class

(Monday, Wednesday or Friday).

3. You must submit this assignment online via the Canvas link a. Do not include the Excel document in your submission b. Only the written report is required.

4. Before beginning work read both Appendix 1 and Appendix 2 (the marking rubric) for important information. Appendix 3 is important to the work you will need to do.

This is a group assignment. The minimum group size is one and the maximum is five. You must submit the following table completed with your agreed percentage of contribution for each group member. All group members will receive marks according to the percentage of contribution mutually agreed by the whole group. If it is decided that everyone contributed equally, indicate the contribution % as 100% for each group member. Any issues in regard to this must be resolved before submission.

Group Members: First name Last name Student ID Contribution

% Signature

ECON1061 – Group Assignment, Semester 1, 2019 Page 2 of 10

1 Introduction and Overview

In this assessment task you will take the role of an expert Quantitative Analyst employed by a government organization in Australia. Government decision makers heavily rely on the advice of experts like you when formulating policy or making important developmental decisions. You are to conduct an in-depth industry analysis, as outlined in Section 2.

As you write the report, keep in mind that the audience is other expert economists. Employ the correct economic terminology and assume the readers have an understanding of the underlying economic theory. Your report must be short but comprehensive, including all key facts and details. Your report should not exceed six pages of A4 (including references and any Appendix). The font used should be Arial 12pt. Margins should be set at 2.54cm and header & footer at 1.25cm, include page numbers in either the header or footer. 2 Task

The farmed livestock industries of the Australian agriculture sector, including the beef cattle, dairy, sheep, pig and poultry industries, play a significant role in the Australian economy.

You are tasked to produce an Economic Impact Assessment of Australia’s cattle and sheep industry. In addition, you need to assess how any changes in Australia’s cattle and sheep Industry will impact the Singapore economy in general.

Economic impact assessment is about how one industry sector (or a project or activity within that sector) affects other sectors in the economy. Input-output tables are often used to identify relationships between sectors within an economy.

The data required for this task can be found in the ‘Assignment Data’ Excel file1. This data consists of 32 Australian industries, including the cattle and sheep industry. The external demand (e.g. from the government, exports, etc.) of the dollar amounts for each industry and household spending are also provided.

1 If you are interested, the full and original data can be found using the following link: http://www.abs.gov.au/Ausstats/abs@.nsf/0/65123D449688A658CA2576470014F947?OpenDocument

ECON1061 – Group Assignment, Semester 1, 2019 Page 3 of 10

3 Benchmark Report and Expectations

You should treat the KPMG2 2015 Economic Impact Assessment of the Tasmanian Aquaculture Industry as the benchmark for your report writing style. This report is available at https://www.tsga.com.au/wp-content/uploads/2014/11/TSGA15-Economic-Impact-Report.pdf

If you need any additional statistics about the designated industry, please use the following link: http://www.abs.gov.au.

It is expected that your report should cover:

a) The significance of the Australian cattle and sheep Industry to the services trade to Australia in general (note: only a discussion is expected)

b) If all the Australian cattle and sheep industry’s production is consumed within Australia, such that Australia is a closed economy, which other Australian industry would be most important to the cattle and sheep industry? Explain this finding and its consequences to the economy (in general), if this industry experiences poor performance (note: only a discussion is expected, preferably with reference(s)) c) i. Calculate and report the Type I multipliers for all industries.

(To equip you for calculating the technology matrix, first watch the video podcast on calculating a technology matrix for a larger economy, that is available under “Assignment help” on Canvas. Also refer to Appendix 3 for a simple explanation using a three-sector economy). ii. Explain the Australian cattle and sheep industry Type I multiplier. iii. Calculate and report the Type II multipliers for all industries. iv. Explain the Australian cattle and sheep industry Type II multiplier3 (please refer to Appendix 3 for more details).

d) Suppose the economy is now ‘open’ and thus has an external demand (e.g. from the government, exports, etc.) of the dollar amounts for each respective industry. In the latest budget the Australian government has declared significant cuts to the ‘Transport and Support Services’ Industry. In fact, it has decided to cut the external demand of this industry by half. Discuss the impact of this on the Australian cattle and sheep industry. Discuss which industry outside ‘Transport and Support Services’ will be most heavily impacted by the cut to Transport and Support Services external demand and possible reasons for why this other industry would be impacted (preferably with reference(s))?

2 KPMG is a global professional service company, one of the Big Four, https://home.kpmg.com/au/en/home.html 3 A similar type of analysis is carried out in the KPMG report, page 11. The formula the KPMG report used is suitable for calculating the individual multiplier for each individual industry, whereas the one explained in Appendix 3 is suitable for collectively calculating multipliers for all industries at once.

ECON1061 – Group Assignment, Semester 1, 2019 Page 4 of 10

Express the change in the other industry’s output both in dollars and percentage (note: Leontif Input-Output analysis is expected, do not include Household spending in this analysis, you can

use the same ( ) 1

I M −

− matrix developed when calculating Type I multipliers in part c(i).

e) Applying your knowledge of economics, indicate one factor (not covered above) that would make Australian exports attractive to Singaporeans. Explain your choice with economic theory, reports you have seen in the media, or in academic journal articles. f) Include references where appropriate g) A brief literature review (similar to Table (2): Impact studies of farm and non-farm salmon fishing of the benchmark report, KPMG, page 5) explaining the main findings of at least two research papers relevant to your research report h) Based on your analysis, provide recommendation(s) for the Australian government (if any).

ECON1061 – Group Assignment, Semester 1, 2019 Page 5 of 10

Appendix 1

1. Finding the inverse There are a couple of options to find the inverse of a matrix. The simplest is through Excel. Please use the following website as a rough guide: http://www.excelfunctions.net/Excel-Minverse-Function.html Important note: The numbers in the table that you wish to find the inverse of must be rounded to 2 decimal places before using the inverse formula. You will need to use the round formula [=round(array,2)] to achieve this outcome (where array is the range of cells containing the numbers you want to round). Do not use the ‘increasing/decreasing the number of place’ command (the function as shown in the picture below) as this will only ‘visually’ round the solutions to the number chosen. You may, however, use this command when presenting solutions.

2. Excel tips You will be performing most (if not all) of your calculations in Excel. - Various skills in Excel that may be useful to you can be found in this video:

o https://www.youtube.com/watch?v=1naiWCWfSt4 - You may also want to freeze certain cells when dragging formulas down:

o https://www.youtube.com/watch?v=mvwmNxuiXO8

ECON1061 – Group Assignment, Semester 1, 2019 Page 6 of 10

Appendix 2: Marking Rubric

Criteria (refer Section 3

above)

Unsatisfactory Satisfactory Good Excellent

Task (a) Does not adequately discuss (a) (0 – 1 marks)

Partially discusses (a), without providing adequate details (1.5 – 2 marks)

Somewhat acceptable, but could have discussed more and provided more details (2.5 – 3 marks)

(a) is discussed adequately providing all necessary details (3.5 – 5 marks)

Task (b) Does not adequately discuss (b) (0 – 1 mark)

Partially discusses (b), (1.5 – 2 marks)

Somewhat acceptable, but could have discussed more (2.5 – 3 marks)

(b) is discussed adequately providing all necessary details (3.5 – 4 marks)

Task (c) Calculations and discussions were wrong (0 - 0.5 mark)

Calculations correct but the discussions were wrong (1 – 1.5 marks)

Calculations correct but could have discussed more (2 to 3.5 marks)

Calculations and discussions are accurate (4 to 6 marks)

Task (d) Calculations and discussions were wrong (0 - 0.5 mark)

Calculations correct but the discussions were wrong (1 – 1.5 marks)

Calculations correct but could have discussed more (2 to 3 marks)

Calculations and discussions are accurate (3.5 to 6 marks)

Task (e) Does not adequately discuss (e) (0 – 0.5 marks)

Partially discusses (e), (1 – 2 marks)

Somewhat acceptable, but could have discussed more (2.5 – 3 marks)

Discussed (e) well providing references/reports /economic theory to support (3.5 – 5 marks)

Task (f) Does not provide appropriate references (0 marks)

One or two appropriate references provided (0.5 – 1 mark)

Three or four appropriate references provided (1.5 – 2 marks)

More than four appropriate references provided (2.5 - 3 marks)

Task (g) Literature review is not conducted (0 mark)

Literature review is conducted but the references are not relevant (0.5 – 1 mark)

Literature review is conducted but the main findings are not summarised well (1.5 – 2 marks)

Excellent literature review and discussion (2.5 – 4 marks)

Task (h) No recommendation provided (0 mark)

Meaningless recommendation is provided (0.5 – 1 mark)

Recommendation is inadequate (1.5 – 2 marks)

Solid recommendation provided with reasoning (2.5 – 3 marks)

Overall business report style and presentation (compared to the benchmark report)

Not impressive (0 – 0.5 mark)

Somewhat acceptable (1 – 1.5 marks)

Good effort (2 – 3 marks)

Excellent (3.5 - 4 marks)

ECON1061 – Group Assignment, Semester 1, 2019 Page 7 of 10

Appendix 3 Explaining Type I multiplier and Type II multiplier calculation using a three-sector economy Multipliers measure total change throughout the economy from a one unit change for a given sector. In economics, three types of multipliers are calculated from model 1] output, 2] income and 3] employment and these are referred to as the Type I multiplier, Type II multiplier and Type III multiplier, respectively. Your assignment task covers only Type I and Type II multipliers which are calculated as follows: Type I multiplier calculation and Interpretation: Type I multiplier includes direct or initial spending + indirect spending or businesses buying and spending to each other. Consider the input/output table for the three-sector economy:

Input to ($million) Agric. Health Services Other demands Total output Output from ($million) Agric. 150 225 125 100 600

Health 210 250 140 300 900 Services 170 0 30 100 300

Step 1: Use the underlying assumption total input = total output to complete the following input/output table

Input to Agric. Health Services Other demands Total output

Output from

Agric. 150 225 125 100 600 Health 210 250 140 300 900

Services 170 0 30 100 300 Other inputs 70 425 5 Total input 600 900 300

Step 2: Calculate the technology matrix, M, by dividing each column of inputs by total input

Input to Agric. Health Services Other demands Total output

Output from

Agric. 150/600 225/900 125/300 100 600 Health 210/600 250/900 140/300 300 900

Services 170/600 0/900 30/300 100 300

Total input 600/600 900/900 300/300

ECON1061 – Group Assignment, Semester 1, 2019 Page 8 of 10

Thus ! = " 150/600 225/900 125/300 210/600 250/900 140/300 170/600 0/900 30/300

- = " 0.25 0.25 0.42 0.35 0.28 0.47 0.28 0.00 0.10

-

Step 3: Determine the inverse of (I – M) 0 – ! = "

1 0 0 0 1 0 0 0 1

- − " 0.25 0.25 0.42 0.35 0.28 0.47 0.28 0.00 0.10

- = " 0.75 −0.25 −0.42

−0.35 0.72 −0.47 −0.28 0.00 0.90

-

40 − !567 = " 2.24 0.78 1.45 1.54 1.92 1.72 0.70 0.24 1.56

-

Note: You can use the Excel minverse function to calculate above inverse (please refer to Appendix 1 for more detail). Remember to press ctrl, shift and enter together to get the inverse.

Step 4: Total requirements table and interpretation Input to

Agriculture Health Services Output from Agriculture 2.24 0.78 1.45 Health 1.54 1.92 1.72 Services 0.70 0.24 1.56 Total 4.48 2.94 4.73

The output multipliers are simply the column totals for each industry. Interpretation: For example, agriculture Type I multiplier = 4.48. For a $1 change in final demand sales in the local economy, the total direct and indirect impacts on the Agriculture sector is $4.48.

ECON1061 – Group Assignment, Semester 1, 2019 Page 9 of 10

Type II multiplier Calculation and Interpretation: Type II multiplier includes Type I multiplier effects + household spending based on the income earned from the direct and indirect effects (also known as the consumption induced efforts)4. That is, Type II multipliers are derived from the total requirements table (as in Step 4 above) with households. Consider the input-output table with households:

Following Step 1 & Step 2, ! =

150 / 600 225 / 900 125 / 300 55 /168

210 / 600 250 / 900 140 / 300 68 /168

170 / 600 0 / 900 30 / 300 40 /168

68 / 600 95 / 900 5 / 300 0 /168

           

=

0.25 0.25 0.42 0.33

0.35 0.28 0.47 0.40

0.28 0.00 0.10 0.24

0.11 0.11 0.02 0.00

           

Therefore, 0 − ! = 1 0 0 0

0 1 0 0

0 0 1 0

0 0 0 1

           

-

0.25 0.25 0.42 0.33

0.35 0.28 0.47 0.40

0.28 0.00 0.10 0.24

0.11 0.11 0.02 0.00

           

=

0.75 0.25 0.42 0.33

0.35 0.72 0.47 0.40

0.28 0.00 0.90 0.24

0.11 0.11 0.02 1.00

− − −   

− − −   − −  

− − − 

4 We can include household spending by treating households like they were an industry: by adding payments to local households as another row and consumption by local households of local production as another column.

Agric. Health Services Household Spending Other demands Total output

Output from ($million) Agric. 150 225 125 55 45 600

Health 210 250 140 68 205 900

Services 170 0 30 40 20 300

Household Spending 68 95 5 0 0 168

Other denands 2 330 0 5

Total 600 900 300 168

Input to ($million)

ECON1061 – Group Assignment, Semester 1, 2019 Page 10 of 10

Thus 40 − !567 =

3.15 1.40 2.22 2.13

2.65 2.68 2.66 2.58

1.16 0.56 1.96 1.07

0.66 0.45 0.57 1.53

           

As in Step 4: Total Requirements Table

Input to Agriculture Health Services Household

Spending Output from Agriculture 3.15 1.40 2.22 2.13 Health 2.65 2.68 2.66 2.58 Services 1.16 0.56 1.96 1.07 Household

Spending 0.66 0.45 0.57 1.53

Total 7.61 5.09 7.41 7.32

Interpretation: For example, health sector Type II multiplier is 5.09. For a $1 change in final demand sales in the local economy, the total direct, indirect and induced impacts on the health sector is $5.09