Question 5 AD and AS and the Australia Economy 50 marks In the following graph, suppose the Australian economy moves from point A in year 1 to point B in year 2. Using the graph briefly explain your answers to each ofthe questions. Explain why the unemployment rate in year 2 is higher or lower than in year 1? [4 marks} Explain what is the inflation rate in year 2? [4 marks} What is the growth rate of real GDP from year 1 to year 2? [6 marks} Explain where on the diagram and how the economy will move in the long run. if LRASg stays constant and there is no policy intervention. [6 marks} $1120 1140 1160 Real GDP {billions of dollars} Assuming the Australian economy was in longrun equilibrium in early 2022. In the third quarter of 2022. Australia experienced supply shocks due to reductions in the availability of oil, with the SRAS curve shifting to the left. Prior to this, however, the removal of SQUID-19 restrictions has led to households wishing to spend accumulated sayings, causing AD to shift to the right (Note: Assume that the shift in .AD is less than the shift in SRAS). Draw the basic (static) aggregate demand and aggregate supply model to illustrate and explain what happens in the short-run real GDP, the price level and the unemployment rate when the economy suffers a su pply sh ock. {15 marks} Use the basic {static} aggregate supply and demand model to illustrate and explain what happens in the long-run real GDP. the price level and the unemployment rate following this supply shock. {15 marks}