Economics Paper
An analysis of the aggregate demand and supply model in Australia in relation to the GDP
Diagram 1
In this case, before the decrease in the demand, the economy is estimated to start at the point marked C in the diagram above, with the GDP being at point Y1. The decrease in wealth, on the other hand, shifts the aggregate demand curve to the left from AD 1 to AD2. As a result of the price fall and output declines or decreases. The unemployment rate also increases as the economy falls below the potential GDP which is estimated to be at point B. The slow pace of the economy cause the workers to adjust their demands and the expectations below based on the wage bills and the prices get downward (Ansell, Gibson, & Salt, 2016).
Eventually, this aspect will cause the workers to accept the lower wages and the prices so as there will be a shift to the short-run aggregate supply curve to the right side. At this point, the economy moves to point marked A in which the real GDP is restored back to the potential GDP at the point marked Y1 and even the prices get even lower. The Unemployment rate starts now to get to the normal natural level.
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The potential of the economy is at point A where the prices are at an equal level to point marked P1 and the amount that is at the real GDP at the point marked Y1. At the point marked Y1 is also the level of the potential output that can be realized from the economy. In this case, a negative supply shock can be realized where the economy is situated to be at point A, with the price level being approximated to be at point P1 and the amount of the real GDP being approximate to be at Y1 (Honkapohja, & Westermann, 2009).
Y1 is likewise the level of the potential output of the economy. A negative supply shock, for example, an unforeseen increment in the cost of oil, will move the SRAS bend to one side, with the goal that the economy winds up at point B. This will build the value level from P1 to P2. Joblessness ascends as genuine GDP falls to Y2 which is underneath potential GDP.as a surprising increment in the cost of oil, will move the SRAS bend to one side, with the goal that the economy winds up at point B. This will expand the value level from P1 to P2. Unemployment rises as genuine GDP tumbles to Y2 which is beneath potential GDP.
On the other hand, we find in the above figure, the economy is situated at a point marked B, where the price level is equal to P2 and the amount of the real GDP at Y2. The economy is in a short run position of the equilibrium after the supply shock. The rising unemployment and the falling output and the results of the workers who are willing to accept the low wage bills and being at the firms with the low prices. This will move the SRAS bend to the great desires change. This brings down the value level from P2 to P1 and raises genuine GDP from Y2 to Y1. Unemployment falls as genuine GDP ascends back to potential GDP at Y1.
References
Ansell, D., Gibson, F., & Salt, D. (2016). Learning from agri-environment schemes in Australia: Investing in biodiversity and other ecosystem services on farms.
Honkapohja, S., & Westermann, F. (2009). Designing the European Model. London: Palgrave Macmillan UK.
