Question

Country facing a lost decade of growth, ANZ warns

By Shane Wright (Sydney Morning Herald, 21 January 2020)

Australia is facing a lost decade of economic growth, ANZ has warned, that will see living standards slip and wages grow modestly while putting pressure on the Morrison government's plan for a string of budget surpluses.

…

ANZ head of Australian economics David Plank said growth through the current decade would average 2.6 per cent, with that tipped to fall to between 2 and 2.5 per cent across the 2020s. He said that level of growth, lower than both estimated by the Reserve Bank and the federal Treasury, would be driven by tepid non-mining business investment, weak productivity and household consumption held back by high debt and modest wage increases.

…

Australian households, despite record levels of wealth due to high house prices, were carrying record levels of debt that would crimp their spending plans.

…

In its December budget update, Treasury forecast economic growth to lift to 2.75 per cent through 2020-21 and then climb to 3 per cent for the next two years. That level of growth is expected to help drive down unemployment and push up wages.

…

The last paragraph of the article in above question states that economic growth in the future is expected to decrease unemployment and increase wages. Explain the effect these changes in unemployment and wages would have on the AD and SAS curves, and on the short run macroeconomic equilibrium.

Answer 1

Answer:Economic growth in the future is expected to decrease unemployment and increase wages in Australia.The effect these changes in unemployment and wages would have on the AD and SAS curves,and on the short run macroeconomic equilibrium mentoned below:

1) Aggregate Demand(AD):When unemployment decreases naturally more workers are hired.Due to more hiring real GDP output increases and the price level incease,leading to increase in inflation,subsequently aggregate demand increases and AD curve shift to the right.

2)Short Run Aggregate Supply(SAS):As mentioned earlier higher inflation leads to more output,higher inflation is also associated with lower unemployment in short run.It will also increase GDP output.Due to these changes SAS curve shift to the right.

3)Macroeconomic Equilibrium:is a condition in the economy in which the quantity of aggregate demand equals the quantity of aggregate supply.If there is a positive change in prices,unemployment and inflation,change would take place in either aggregate demand or aggregate supply..