Question
A temporary economic boom in China pushes up that country's demand for Australian minerals. The boom ends quickly however and Chinese demand for Australian minerals
A temporary economic boom in China pushes up that country's demand for Australian minerals. The boom ends quickly however and Chinese demand for Australian minerals falls back to normal levels. Assume that the Australian macro-economy begins in equilibrium for both the short-run and long-run.
a). Use the AE-45 degree line graph and the AE equation to depict the way the Australian economy moves out of equilibrium as a result of the China boom. Then depict equilibrium being naturally restored after that boom ends. Briefly explain the economic intuition behind your answer
b). Use the AD-AS graph to depict the way the Australian economy moves out of equilibrium and back into equilibrium as a result of the sudden China boom. Then depict equilibrium being naturally restored after that boom ends. Briefly explain the economic intuition behind your answer
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