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1. Use the Aggregate Expenditure model to explain the potential impact of both “…rising value of the Australian….” and “….concerns about the global economy…”, on equilibrium output and employment. In your answer make sure to discuss the linkages (of these two comments) with aggregate expenditure and also explain the equilibrating process to the new potential macroeconomic equilibrium.
2. From the article, explain the circumstances that would need to occur which would prompt the Reserve Bank to lower interest rates; and use both the Aggregate Expenditure model and also the static Aggregate Demand-Aggregate Supply model to show the impact on equilibrium output and employment if such actions were undertaken by the Reserve Bank.
3 (a). Given the following statement from the article “Malcolm Turnbull has made raising Australia’s growth rate the central focus of the budget, which is expected to include both fresh infrastructure spending and corporate tax incentives…”, use the dynamic Aggregate Demand-Aggregate Supply (AD-AS) model to explain the hoped for intentions of adopting such an approach on economic output and employment in the long run.
3(b). With reference to question 3(a) above, and to the uncertainty surrounding “..whether demand will be strong enough to keep unemployment from rising over the year ahead…”, use the dynamic AD-AS model to outline the medium term impact on equilibrium output and employment if such uncertainty turns out to be correct.