Question

Consider the following article below.

A)According to the article, is Australian economic growth increasing or decreasing compared to previous years? Provide some evidence from the article supporting your view. 6 marks

b)

what kind of fiscal and monetary policy should government authorities implement? Explain why and give specific examples of each policy that might be implemented. What effect would these policies have on aggregate demand (AD)?(6marks)

c)  The last paragraph of the article 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.(6 marks)

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.

Answer 1

A.

Current level of economic growth is decreasing as compared to previous years.

In 1st para we can see that ANZ warned that growth through current would average 2.6 percent.

Level of growth is lowerthan both estimated by Rreserve bank and federal treasury.

B.

Government should implement expansionary fiscal policy to boost up the economy .

This policy is used mostly in times of unemployment and recession .

Open market operation can be done by the reserve bank to control the economy of the country.

IT WILL HAVE POSITIVE EFFECT ON AD curve the demand curve will shift towards the right with increase in employment opportunities and increased money supply.

(C).

increase in wages and decrease in unemployment will have following effects

On AD : it will have a positive effect and AD would shift towards right.

On SAS : SAS curv3 would also shift right with increase in resources ..

Short run macroeconomic equilibrium will be reached when level of employment is equal to level of wages.