This is the Macroeconomics’ assignment
Tutorial Day and Time
Government expenditure and exports are two aggregate demand factors that will impact on the economic activity of Australia in the year 2017. The increase in Government expenditure will definitely lead to the increase in the aggregate demand. The increase in the government expenditure will avail revenue to be used in offsetting weak areas for the Australian budget such as low wage growth and underemployment (Heath, 2016:3). Repairing the budget will lead to the increase in the economic activity hence increasing the aggregate demand and vice versa. The increase in exports will lead to the increase in the trade balance hence increasing the aggregate demand and vice versa. The Australian economy is driven by the exports (Heath, 2016:4). The growth of exports will continue to be the country’s key driver hence impacting on its economic activity through the aggregate demand.
Prices and booms are two factors that will impact on the aggregate supply of the economic activity of Australia. The increase in prices will boost the economic activity through boosting profits (Heath, 2016:2) hence leading to increased production and hence increase in aggregate supply and vice versa. Booms will lead to the reduction in the economic activity hence leading to decrease in the economic activity and finally to decrease in aggregate supply.
The AS factors in Question 1 are both long-run AS factors. They are long-run AS factors because none of the factors will be held constant. In the long-run, no factor is held constant. The situation is the same here: both prices and booms will impact on the economic activity of Australia hence its aggregate supply even when the other factors which affect aggregate supply are in action.
Price Level (P)
The increase in the government expenditure and exports will lead to the increase in the economic activity. The increase in economic activity will result in increased aggregate demand. This will be reflected by the shift of the aggregate demand curve from AD 1 to AD 2. A shift in the aggregate demands curve from AD 1 to AD 2 will increase Y by an amount equal to Y2 – Y1 to level Y2. A shift in the aggregate demand curve from AD 1 to AD 2 will lead to a rise in the general price level by amount P2 – P1 from price level P1 to the price level P2.
Boom and the decrease in the prices will result in the reduction of Australia’s economic activity thus reducing its aggregate supply from AS 1 to AS 2: The shift in the aggregate supply from AS 1 to AS 2 will lead to the increase in Y by Y0 – Y1 and from Y1 to Y0. The shift in the aggregate supply curve from AS1 to AS 0 will lead to decrease in the general price level by P1 – P0 from P1 to P0.
Australia had recession since the year 2008. In the year 2009, global financial crisis impact affected Australian economy hence causing the recession. Secondly, Queensland floods and sinkholes of the years 2011 and 2016 also affected Australian economy negatively hence resulting in the recession.
Heath, M. (2016). China Set to Rescue Australia’s Economy at Just the Right Time. Retrieved on December, 7 2016 from http//:www.bloomberg.com/news/articles/…/china-set-to-rescue-australia-s-economy-at-just-the-right-time, Pp. 1-5.