Topic: The AS/AD Model, and using this model to explain macro volatility. Readings: McT (2013) Chapters 24 and 26.
1. Explain whether each event changes the quantity of real GDP supplied, short-run aggregate supply, long-run aggregate supply, or a combination of these.
a. Car-makers in Australia switch to a new technology that raises productivity.
b. Toyota and Honda build additional plants in Australia.
2. Explain whether each event changes the quantity of real GDP demanded or aggregate demand.
a. Car-makers in Australia switch to a new technology that raises productivity.
b. Toyota and Honda build new plants in Australia.
3. The following events have occurred at times in the history of Australia:
• The world economy goes into an expansion.
• Australian businesses expect future profits to rise.
• The government increases its expenditure on goods and services in a time of war or increased international tension.
a. Explain for each event whether it changes short-run aggregate supply, long-run aggregate supply, aggregate demand, or some combination of them.
b. Explain the separate effects of each event on Australian real GDP and the price level, starting from a position of long-run equilibrium, and assuming ceteris paribus.
c. Explain the combined effects of these events on Australian real GDP and the price level, starting from a position of long-run equilibrium and assuming ceteris paribus.
4. After you have studied Reading Between the Lines on pp. 562-63 of the textbook, answer the following questions.
a. What are the main features of the Australian economy in the second quarter of 2011? b. Did Australia have a recessionary gap or an inflationary gap in 2012? How do you know?