Suppose, initially the Australian economy is at full employment (in other words the economy is at the potential GDP). Using AD-AS model, explain how would each of the following events affect the economy both in the immediate and in the long term.

a) A slowdown in China's economic growth due to the sub-prime crisis in the US. (3.5 marks)

b) Union wage settlements push the wage rate up. (4 marks)

c) An increase in consumer confidence. (3.5 marks)