Question:
Discuss about the Macro Economics for Aggregate Demand and Supply.
Imposition of carbon taxes on big companies will reduce both the aggregate demand and the aggregate supply. It will shift the market equilibrium due to higher prices due to increase in taxes and lower quantity due to the same. Incidence of tax which means shared tax burden will be more on the producers than the consumers(Farmer, 2007). This is because the producers have a more inelastic curve as they are the producers. The demand curve of the consumers is elastic and he bears less cost if tax is imposed.
Tax increase (t)
After increase in taxes the supply shifts its position to the left. The tax burden is shifted to the consumer who has to pay more due to price increase.
The Australian dollar may appreciate due to the following reasons; a) when the exports are more expensive than imports hence higher prices, when the reverse is true and imports are cheaper and Australia imports more quantity, lower (X-M) causing a slow economic growth and lastly low inflationary rates(Michaillat & Saez, 2013).
Currency appreciation leads to improved living standards, low inflation rates and competitive prices of goods in the economy.
When economic growth falls for consecutive economic quarters recession occurs. Recession causes increase in unemployment due to sparing economic growth. A fall in demand aggregate causes a corresponding fall in real GDP according to Keynesian theory(Farmer, 2007). Effect of GDP is affected by the slope of supply curve when the economy is acting in full capacity. A lower demand will lead to a corresponding lower real GDP.
Causes in recession are, cost push inflation resulting in disposable income reduction, falling prices and lack of confidence in the economy.
Source; https://www.tutor2u.net/economics/reference/
C+I+G+X-M could lead to recession. This is demand aggregated. The multiplier effect in the fall of aggregate demand is due to fiscal policy deflationary.
The aggregate demand is the total spending of services and goods by consumers, the government and the general population and overseas firms.
Aggregate demand= consumption + capital investment+ government spending+( exports –imports)
The measure of net exports is done by calculating the total value of exports less the total value of imports.
A change in prices affecting both exports and imports causes a corresponding shift in aggregate demand curve.
Shift in aggregate demand
The will be a deficit in net import will cause a shift in aggregate demand as the prices of exports will be lower than the prices of imports.
2.
When the businesses are not expanding , it means that there is no economic growth. Assuming that the economy is at a natural level of real GDP, hence aggregate demand will increase because there is no full employment of the input resources. Thus, demand aggregate shifts rightwards from D1 to D2. Corresponding increase in the equilibrium prices of goods from P1 right to P2 and a corresponding increase in real gdp from Y1 right to Y2(Heinrichs, 2007).
When the value of supper annotation nest egg decreases due to stock fluctuation, the consumer will have some money left to spend. The increase in disposable income will lead to increase in demand for goods which will further push AD curve to the right. This further pushes the equilibrium price upwards and also shifting the real GDP to the right.
3. Australia economic indicators in 2015
4. The public budget balance of a country is equal to the difference between income and expenditure of public administrations. When expenses exceed income it is said that no public deficit, which is usually expressed as a percentage of GDP to facilitate international comparisons and over time. Australia structural deficit problem started when it started borrowing heavily to finance its public expenditure. The heavy borrowing was to be used as an instrument of economic policy especially after adverse business cycles in the country.
However, it is also necessary to note that when the government of a country in deficit, should issue public debt to finance it. Therefore, maintaining a permanent form of a high public deficit could itself lead to an unsustainable situation of public finances (explosive growth of debt / GDP ratio) would require a correction of fiscal policy(Hunnicutt, 2010).
Another problem often mentioned when considering the existence of public deficit in a country is the possibility that an effect occurs expulsion from the private sector: the expansion of the public sector could be at the expense of a lower weight of the private sector, but would increase GDP actually(Macro Economics, 2006). But this effect will be really significant the closer the economy of their level of potential output are and, therefore, is greater the degree of utilization of productive factors.the Government should continue working to reduce the structural deficit and keep public debt in check.
External debt frequently occurs through organizations like the International Monetary Fund or the World Bank. If the debtor has trouble paying it, it can pose a serious problem for the economic development of a country, and even for its autonomy. Principally, indebtedness is somehow good, it preserves resources while receiving resources externally for exploits of the process. However it becomes problematic when debt is not really used to what was intended for or refund conditions harden. There are detrimental factors to countries that have borrowed heavily such as Australia. First, interest rates rise which precipitated the debt crisis in past years, became popular (by inevitable) the requisition of new loans to cope the pay of unplayable debts, the result from the catastrophe economic of the last 10 years and the debt multiplication. Secondly The U.S dollar was strongly valued. Structural adjustment plans were also initiated,
Some repercussions of the great indebts of a single country can be:lack of ability to obtain new loans when necessary. harsh conditions imposition by creditors, rising inflation growth, making it very difficult to repay the loan. Also, the development in economic measures of the country will be prohibited by debt, entering a spiral of endless impoverishment. A country’s Mismanagement in internal fiscal policies leading to economic crisis.
5. I don’t foresee any economic threat for Australia this is because Australia is the only country OECD that wasn’t affected by recession during the financial crisis. The Australian economy experienced 25 years of consecutive growth. The growth was 2.4% in 2015, falling slightly compared to 2014. The Australian dollar fell in 2015, and the falling prices of coal and iron ore weighed heavily on exports. This trend should be similar in 2016. The slowdown is further explained by lower Chinese demand for exports(Prasch, 2008). The mining industry accounts for 20% of GDP, but faces decline in investments. Advantages of Australia is that it has: a massive export given by agricultural produce, strong internal domestic demands and a strong financial industry.
In September 2015, Malcolm Turnbull took over as prime minister. His predecessor, Tony Abbott, suffered more than the economic slowdown, and the public deficit increased during his tenure. Malcolm Turnbull wants to implement a policy of economic recovery, investing in training and infrastructure.. To revive the economy, the Central Bank lowered its key rate to 2% in May 2015, It is corresponding to a historically low level. This initiative supported the expense of Australian households, which are nevertheless particularly indebted. Australian economic situation remains enviable: the country’s public financial debt contribute to among the lowest in OECD . The govt aims to increase the competitiveness of the country , particularly when compared with the rivalry from countries from the asian block with regards to exports , and to tackle the challenges of an elderly citizenry and also issues of climate ( droughts , floods ) . To stimulate the overall economic growth , Australia should improve its integration in trade with Asian countries . In 2014 november , a free trade agreement was signed with China , its most significant trading partner was signed(Scheer & Vogelbusch, n.d.) . This approach demands Australia to cautiously manage its relations with its traditional partners : Japan along with the United States . Since 2014 , Australia entered the fight against terrorism in the Middle East , and the country has deployed attacks in Syria in 2015.Finally, the severity of Australian immigration policy is criticized because the country is accused of systematically rejecting the ships with illegal immigrants.
Australia prides itself with it economic prosperity: its has among the highest per capita in terms of GDP and is among the highest in the world. The unemployment rate was 6.2% in 2015, slightly higher that is due to the cooling of the inversions in the mining sector. Moreover, the government approved a carbon tax in 2014, considering that Australia is one of the most polluting countries. Faced with international pressure, then Australia is committed to developing the nuclear sector to reduce its emissions of greenhouse gases. However, the first statements of the new prime minister did not indicate that ecology becomes part of its policy priorities. However, it seems like the country has put its house in order and will not be expecting a recession any time soon.
References
Beetsma, R. (2004). Monetary policy, fiscal policies, and labour markets. Cambridge, UK: Cambridge University Press.
Dufty-Jones, R., Connell, J., & Argent, N. Rural change in Australia.
Farmer, R. (2007). Aggregate demand and supply. Cambridge, Mass.: National Bureau of Economic Research.
Heinrichs, A. (2007). Australia. New York: Children’s Press.
Hunnicutt, S. (2010). The federal budget deficit. Detroit, MI: Greenhaven Press.
King, J. (2003). The Elgar companion to post Keynesian economics. Cheltenham, UK: E. Elgar Pub. Macro Economics. (2006).
Michaillat, P. & Saez, E. (2013). A theory of aggregate supply and aggregate demand as functions of market tightness with prices as parameters. Cambridge, Mass.: National Bureau of Economic Research.
Monetary, credit, and fiscal policies. (1950). Washington.
Patel, K. & Schweitzer, H. The historical foundations of EU competition law.
Prasch, R. (2008). How markets work. Cheltenham, UK: Edward Elgar.
Scheer, C. & Vogelbusch, F. Fiscal policies. [S.l.]: [s.n.].
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