The last several decades has seen a significant amount of human capital entering Australia from foreign nations ranging from low-skilled to high skilled labour and seen as an important factor of the rate of invention and innovation within an economy. Imposing restrictions on skilled immigration policy may deteriorate the overall level of human capital given it is an integral part of production, and hence output. COVID- 19 has also shown the restrictive effects of the movement of human capital across countries. Assume there is no fiscal policy response from the government for the following questions.

a. Explain and illustrate the short-run effect of the Australian Government imposing a strict ban on human capital entering Australia, by significantly reducing the number of skilled immigrants entering the nation over the next 20 years on macroeconomic equilibrium using the AD-AS model.

b. Explain and illustrate the adjustment process to back to long-run equilibrium based on the following:

i. Self-correcting mechanism (i.e., with no policy response).

ii. Active stabilisation response (i.e., with policy response).