Y6

Consider the pre-coronavirus Australian economy in 2019 and assume that it can be represented using a 4-sector multiplier model and the following hypothetical information: (All amounts are expressed in $m)

c0 =1,000,I=2,000,G=1,500,X=1,500,c1 =0.8,t=0.2andm=0.14 a) What is the equation for aggregate demand (AD) in the Australian economy in 2019?

b) Calculate the equilibrium value of income (GDP) in the Australian economy in 2019 and represent this in a fully labelled multiplier model diagram. Label all relevant axes, axis-intercept points, equilibrium points and curves on your model.

c) Assume that in 2020 the coronavirus causes the Australian economy to experience a $600m decrease in autonomous consumption spending. What is the equation for AD in the Australian economy in 2020 and calculate the level of equilibrium GDP in 2020.

d) Represent the situation described in c) in a multiplier model diagram. Show and describe, using the diagram and words, the first two rounds of the multiplier process following the increase in export spending. Include in your answer the relevant calculations for these two rounds of the multiplier process.

e) What were net exports for the Australian economy in 2019 and 2020? What has happened to net exports in the Australian economy between 2019 and 2020?