Assume that the Australian economy originally starts at the long-run equilibrium.

The shock in focus is the impact of immigration on the Australian economy.

Starting in 2021, it has been speculated that the Australian government will increase intake of high-skilled migrants and business migrants into the country.

*Note: High-skilled migrants refer to those with skills and expertise in occupations which are in high demand in Australia. Business migrants refer to those who are expected to set up business ventures upon migrating to Australia.

Required

1.Considering the shock above, point out how Aggregate Demand, Short-run Aggregate Supply and Long-run Aggregate Supply will be affected (1.5 marks)

2.Explain clearly in words the reasons behind the effects on Aggregate Demand, Short-run Aggregate Supply and Long-run Aggregate Supply, as pointed out in (a)

3.Describe how the AD, SRAS and LRAS curves will shift following the shock above

4.Explain clearly in words how the key macroeconomic variables (average price level, inflation rate, Real GDP and unemployment rate) will be affected by the shock above