The Australian government has scrapped agreements tied to China's Belt and Road initiative, prompting anger from Beijing and adding further strain to tense relations between China and Australia (BBC News, April 2021). China is Australia's largest trading partner and before the pandemic, it was the biggest source of overseas university students.

The diplomatic and trade ructions between two countries have led to a significant reduction in exports from Australia. Some experts fear that the trade war could impact Australia's education sector which contributes approximately 30 per cent of the country's exports to China.

Assume that Australia is already experiencing recession due to the COVID-19 Pandemic. GDP has decreased primarily due to weak spending by households and a significant reduction in business investment.

a)Use the multiplier model diagram to illustrate the impact on Australia's GDP from a reduction in net exports due to the trade war between Australia and China. Show the output gap in your graph. (5 marks)