Microeconomics assignment Essay Example

1 Based on the report,Identify and briefly explain 4 aggregate demand and 2 aggregate supply factors that Impacted on Australia Economic activity in the last quarter of 2016 and the first quarter of 2017

Aggregate demand factors

Household consumption

There was an increase in household consumption in the last quarter of 2016.This was contributed by a decrease in interest rates which resulted to increase in household’s wealth. On the month of December, investment increased especially in construction industry.This contributed to increased demand for dwellingin the first quarter of 2017 as households took loans to purchase the houses.

Government spending

There was a steady increase in public demand in the last quarter of 2016 which was highly contributed by public investment.There was increase in public infrastructure especially investment in pipeline This is likely to increase public investment in the coming years.

Net exports

There was an increase in net exports in the last quarter of 2016.The increase in exports resulted to an increase in mining investment.The increase in exports of iron ores was largely contributed by a decline in costs of production.

Investment in non- mining states increased

There was also increase in farm production in year 2016 and 2017.The production of wheat and barley was so high that in the last quarter of 2016 such that the farm’s GDP rose by 10%.This was highly contributed by good weather conditions in the winter.

Aggregate supply factors 9

Labour market

Full time employment increased over the last 6 months.There was a constant growth in part time employment. Average hours worked per worker remained relatively low, however part time workers are able to work for more hours.

Labour costs

Wage growth rate remained low.This was contributed by the low level of inflation in the period.CPI inflation was the main determinant in the setting of wage bill.

b)Are the factors a factors in (a) above short run or long run.Explain

Labour market is only a short run.After employment declined much of 2016,full employment has increased over the past 6 months.Labour costs is on a long run.This is largely contributed by spare capacity in the labour market because of lower inflation outcomes.

c )LRASi LRASii

P RASi SRASiiS

A

Pi

Ti Tp RGDP (y)

The supply curve for labour market shifts from SRASi to SRASii.This is due to increase in full employment over the last six months.

The supply curve for labour costs is a long run.It shifts fromLRASi to LRASii.

2 a.Identify the phase of the business cycle for universal in 2015.Explain two reasons for your answers

It is a depression cycle.Index of business confidence declined from 110 in 2014 to 90 in 2015 .There was also a increase of unemployment rate from 2.5 in 2014 to 6.5 in 2015.

b)What was the likely cause of inflation in 2015?Explain giving 2 reasons for your answers

The cause of inflation was due to increase in prices of commodities.

Reasons;

Consumer confidence index decreased from 115 in 2014 to 80 in 2015. Unemployment rate also increased in 2015 to 6.5% compared to 2014 which was 2.5%

c What is deflation and why is it a concern for economies at times of low Real GDP growth or recession

It can be referred to as general decrease in price of commodities in a country. As deflation occurs, production decreases which causes inventories to be liquidated(Hayes,2017)Demand will decrease and unemployment will increase as a result.Investment in the country lowers and the economic GDP will decline.

References

Hayes, A.(2017) Why is deflation bad for the economy.Updated on 12^th may 2017.retrived fromhttp://www.investopedia.com/articles/personal-finance/030915/why-deflation-bad-economy.asp