EXTENAL EXAM FOR ECONOMICS

The Current State of e Economy

has phases E Peak


output




f
time
I
increasinginDemand f increaseinwages
increaseinconsumerspending


Thisbusinesslifecycleconnects to a macroeconomictheory
f increasingin unemploymentrate




If
wagepricespiral whichexplainingthecause andeffect decreasingin wages
production
betweenrisingwagesandprices decreasingin outpu
decreasing
Thisstatementonlyapplieswhenworkersreceive awage indemand decreasinginconsumerspendi
hike promotingademandorgoods services




toattÉÉaseintheprices a goodsand
Titionreters
servicesthathouseholdsspend Itismeasured as
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a
rate changeonthoseprices Typically Pricesrise reachtheirproductivecapacity maximum in
overtime yetpricescanalsofallthisrefersto a asupply moredemandfortheiroutput
deflation Additionally theinflationratewithin a menoutputavailable Demandpun
inflat
rangeor2 3 isgenerallyconsideredstabilisation

dl
mortant

Lf L
changeconsumersspendingbehaviours ffmyqee.tt asconsumersdemandless businessesproduceless
output somebusinessesmay
lowertheirpricesorofte
affectcashratetarget wagesIworkedhour discountstoincreasesales leadstolower
impactinterestrates inflationordisinflation worstcasedeflation




Fothoddepositoror ienamoneylinthe.at therosainfluencestheeconomybycarryingoutmonetarypolicy
lendmoneytoppl firms wanstopplandbusinesses ratescanstimulateordampeneconom
Raisingorloweringinterest
acceptdeposits a savings inflationra
activityisneeded helpingtoachievealow steady
Relationships

BoththeRBAand commercialbanksinteractcloselyintheareasormonetarypolicyandfinancialstability formingacritica
relationshipthatunderpinsthebroaderAustralianeconomy

notdirectlycontrolcommercialbanksbut itsetstheofficialcashrate influencingtheinterest
Particularlythecentralbankdoes
ratesthatcommercialbankschargeonwans offersondeposits monetarypolicyinfluence

whiletheRBAsetstheofficialcashrate thecommercialbanksarefreetosettheirowninterestrates whichcanheavilyinfluenc
theoverallbehaviour
borrowingcostslendingpracticesand




th

, in.am
T.fi expensivetoborrowmoney andmoreattractivetosaveorinvestmoney
tendtosavemoreandborrow Ispendless
peoplewill




Thisresultstothecommercialbankstolowerinterestrates makingit less
FIFI fgfffiffhfffif.de ffffff.mg
go.nu
spendmore


AD I c a x m
y themaximumoutputistheeconomy
operating atfuelemploy diagram represent




T.ws i iiinii niiiaouean output andabovethe orcurve

P It Insistent afloat to
governmentexpenditure goods services AD production As
lowoutputhigh
unemploymentvery
Inflationary actualPL Expected
gap
Impugnon thissignifiesthenation'seconomyis atpeakisthebusinesslifecycle Inaddition
thisshowcasesunstabiliseeconomywithinthecountrytherebypricesareputoninflationar
FIF.usf ff unaemae tominimisetheoverheatingeconomythegovernmentneedstoimplem
pressure Therefore
theflowismoney measuresthatreduceAD includingtheconsider arisingorreducingspending Asares
contractionary toslow

havelessdisposableincome thereby adropsinpricesappears
intheeconomy weakenabilitydemand peoplewill



Eurswnentnerasana
steric
iii.is aissnoIsi ii iiiiiis p
Sras
was
atthefullemploymentlevel Additionally thisdemonstratestherealGDPislower E
P
thanthepotentialGDP signifyingtheeconomybelowoutputandunderthePPF
unemploymenthigh outputlow g
actualPL Expected
y Gdp
Implication Thisdenotesthattheeconomyisitstroughorthebusinesslifecycle meaningless
capabilitiesarebeingproducedmoreovertheeconomyisoperating atP.us reflectingthereis deflationarygap

hasnotbeenfullyleveragedtostimulateconsumersdemand
sparecapacityunderwilisationthat
Therefore itcanbe observedthatdeflationary
gapis aproblemthatthegovernmentandthe
centralbankneedstointervene inordertomitigatetheexacerbate consequences inthelongterm
Soren thegovernmentneedstoaddressthisproblembyintroducingexpansionarymeasures ortheRBAcanreduce
cashratetherebycommercialbankswillalsoreducetheirinterest
ratestherefore promotingdifferenteconomyactivities
inordertoincreasedemand shiftingtheADcurvetothe
righttouchingtheLrasAdditionallythe
shiftsuggests a
riseinpricesand sodoesGDP moreover byundertakingexpansionarytoolstheflowofmoneywillbeincreased in
theeconomyandstrengthendemand