QUESTION ONE

PART A

Assume the following economic events impact the Australian economy. Examine the events and then answer the questions that follow.Note: diagrams are not required for this question.

Event 1.Due to significant Global events that impact on world economic growth, consumer and business confidence in Australia decreases.

Event 2.There is a contraction in RGDP growth in Australia's major trading partners.

Event 3.Resulting from a downturn in global manufacturing, there is an increase in the price of important imported raw materials.

Required:

(i)Explain separately the impact of each of the three factors on real GDP and the price level:

(In your answer clearly identify whether they are AD (Aggregate Demand) or LRAS (Long Run Aggregate Supply; SRAS (Short Run Aggregate Supply) factors or both:

Event 1:

Event 2:

Event 3:

(ii) What is the OVERALL impact of the above economic conditions on equilibrium real GDP and the price level of the Australian economy?

Briefly explain. Include in your explanation whether the AD and or AS curves shift and in which direction.