Answer the following Economic Assessment.
Answer the following Economic Assessment.Use the aggregate expenditure (AE) model to describe the impact of, “ the economy is on an improving pathway boosted by rising business investment and strong export growth” on equilibrium output. In your answer make sure to discuss the equilibrating process of moving to the new macroeconomic equilibrium output.(4 marks)
Qu. 1(b) With reference to the official definition for measuring unemployment and the concept of full-employment, clarify what is meant by the following statement “But the strengthening in full-time employment is much more indicative than earlier indicators that excess capacity is
beginning to wear off”. (4 marks)
Qu. 2 Use the static AD-AS model to describe the circumstances under which the Reserve Bank will be prompted to raise interests as depicted by the following statement: “The nation’s labour market is close to the point when workers, are absorbed into a strengthening economy, stoking the wage inflation that is a key precondition for future interest rate hikes”. In your answer make sure to also describe the long run implications if the Reserve
Bank fails to raise interest rates under such circumstances. [6 marks]
Qu. 3 Referring to the final comment “…will fuel speculation that the Reserve Bank’s first rate hike since 2011 would happen within 12 months” use the dynamic AD-AS model(s) to explain the circumstances under which the Reserve Bank will raise interest rates sometime in the future, and contrast this to the circumstances where it might lower interest rates. [8 marks]