Question 5

1. The information in the following table shows what the situation will be in 2021 if the government does not use fiscal policy:

Year	Potential GDP	Real GDP	Price Index
2022	$2.7 trillion	$2.7 trillion	118.8
2023	$2.7 trillion	$2.3 trillion	119.7

1. Draw an AD-AS diagram that depicts the Australian economy in 2022. Assume the economy is in long-run equilibrium.

(7 marks)

1. On the same diagram, show a short-run supply shock that depicts the Australian economy in a short-run equilibrium in 2023.

(5 marks)