Economics Paper
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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, there is a shift in the demand curve from the left side as at point AD1 to point AD2. As a result of this, the price automatically comes down. The rate of unemployment is approximated to increase in the economy that falls below the actual potential GDP, which is given as point B in the above diagram. The sluggish pace of development in the economy has made the workers to adjust their demands and their expectoration based on the wage bill that is provided (Ansell, Gibson, & Salt, 2016).
Eventually, the case causes the workers to accepts the prevailing conditions of the low wage bills and the prices that are set for the commodities based on the demand and the aggregate shift of the supply curve that is approximated to move to the right side of the demand and supply curve. At this point, the state of the economy is estimated to the move from the point marked Y1, where the prices are estimated to be even a lower price. The unemployment rate at this point starts to be normal it 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 in the graph is the total potential output of the economy. A negative shock in the supply that is foreseen in the increase of the cost of oil where it will make the SRAS move to one side, with the end goal or objective of the economy to end up at point marked B. This will contribute to the aspect of building the value in level marked P1 to Point Marked P2.
The rate of unemployment increases in this case, where the GDP to fall to the point marked Y2, which falls under the potential GDP that is surprisingly increasing the cost of oil, making the curve to move the SRAS to one side with an estimation of the economy to be at point B.
On looking into the aspect of the figure, the economy is at the point marked B, where the price is at an equal level to P2 and the real GDP is at point Y2. The economy is in a point of in- equilibrium after a greater shock in the supply. There is a rise in the level of an employment and the workers are a position to accept any lower price of the wage bills that may arise in this situation depending on the low prices that are set in this economy. This will move the SRAS bend to the great desires change. This brings down the value level from P2 to P1 and raises the GDP from Y2 to Y1. Unemployment reduces and the GDP increases 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.
