Question
3. In the early to mid-2000s, the Australian economy experienced rapid economic expansion, leading to an economic boom. By 2007, data indicated that real GDP
3. In the early to mid-2000s, the Australian economy experienced rapid economic expansion, leading to an economic boom. By 2007, data indicated that real GDP had exceeded potential GDP, and the unemployment rate was the lowest in over 30 years.
Explain how actual real GDP could be greater than potential GDP at this time.
4. What is the relationship between inflation, interest rates and unemployment during a recession?
5. Explain how each of the following events would affect the aggregate demand curve.
a. Lower interest rates
b. A decrease in net exports
c. A decrease in the price level
d. Slower income growth in other countries
e. A decrease in imports
6. What effect does a change in expectations by households and firms in Australia have on the aggregate demand curve?
7.
a. Why is the long-run aggregate supply curve vertical?
b. Explain whether it is possible for a long-run aggregate supply curve to shift leftwards.
c. Why does the short-run aggregate supply (SRAS) curve slope upward?
8. Beginning at long-run equilibrium,
a. use the basic (static) aggregate demand and aggregate supply model to illustrate what happens in the short run when the economy suffers a supply shock, and
b. use the basic (static) aggregate supply and demand model to illustrate what happens in the long run following this supply shock.
9. An article in The Economist noted that in the first half of 2015, the value of Canadian oil exports declined and that 'energy firms, which account for around a third of capital spending, are expected to slash investment by nearly 40% this year'. As a result, real GDP in Canada declined during the first six months of 2015.
a. Use a basic aggregate demand and aggregate supply graph (with LRAS constant) to illustrate this situation.
b. On your graph, show the adjustment back to long-run equilibrium.
10. In the dynamic aggregate demand and aggregate supply model,
a. What is the result of aggregate demand increasing faster than potential GDP?
b. What is the result of aggregate demand increasing slower than potential GDP?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started