The paper "Microeconomics: Problem-Solving Questions" is a wonderful example of ana assignment on macro and microeconomics. When the central bank lifts interest rates, spending on investment reduces, which facilitates a reduction in aggregate demand. In the long-run, reduced investment spending results in unemployment that reduces overall output in the economy (Wessels, 2006). In the figure above, aggregate demand is likely to shift to the left of AD to a point like AD0. An increase in private domestic investment spending pushes the aggregate demand curve outward, and in the long-run, the output increase as the effect of investment spread in the economy (AD shifts to AD’ ) and output increase from (RDO to RDO’ ). An increase in international oil shifts the aggregate supply curve inward, precipitating a rise in aggregate commodity prices that reduce.
As factor costs increase in long-term, investment decline and output in the economy reduce (Wessels, 2006). In the figure below aggregate supply changes (shift) from AS1 to AS2. This indicates that real domestic output decreases. Figure 2: AS graph Source: Hall & Lieberman, 2007 An appreciation in the foreign exchange rate value of the economy’ s currency will discourage domestic production for export, hence fewer exports will be realized and more imports will be entering the economy.
Imports become cheaper as compared to export. A decrease in export and an increase in imports will shift the aggregate demand curve outward, thus the overall output will be increase. A fall in real estate prices in the capital cities of the country will shift the aggregate supply curve outward, meaning consumption will increase which pushes the output of the economy up (Wessels, 2006). In the graph below, this is indicated by a shift from AS1 to AS2. Figure 3: AS graph Source: Hall & Lieberman, 2007 Lastly, in the case the country’ s main exports fall in price while the goods the country imports from abroad rise in price, the aggregate demand shifts outward, meaning an increase in aggregate output for the economy.
This is indicated in figure 1 where aggregate demand shifts from to AD’ .
Berg, H. V. (2010). International Finance and Open-Economy Macroeconomics: Theory, History, and Policy. London: World Scientific.
Boyes, W., & Melvin, M. (2012). Macroeconomics. Mason: Cengage Learning.
Glynn, J. (2010, October 15). Soaring Australian Dollar to Reshape Boom Economy. Retrieved October, 13, 2012, from the Wall Street Journal: http://online.wsj.com/article/SB10001424052748704049904575553921754648874.html.
Glynn, J. (2012, July 17). Australian Dollar Rises as RBA Signals Ease with Monetary Policy. Retrieved October, 13, 2012, from The Australian: http://www.theaustralian.com.au/business/markets/australian-dollar-rises-as-rba-signals-ease-with-monetary-policy/story-e6frg94o-1226428297406.
Hall, R. E., & Lieberman, M. (2007). Macroeconomics: Principles and Applications. Mason: Cengage Learning.
Hossain, A. A. (2012). Macroeconomic and Monetary Policy Issues in Indonesia. London: Routledge.
Jain, T. R., Ohri, V. K., & Ohri, M. (2011). Principles of Macroeconomics. New Delhi: FK Publications.
Kroon, G. E. (2007). Macroeconomics the Easy Way. New York: Barron's Educational Series.
MacDonald, N. T. (1999). Macroeconomics and Business: An Interactive Approach. London: Cengage Learning EMEA.
Sexton, R. L. (2010). Exploring Macroeconomics. Mason: Cengage Learning.
Sloan, J. (2011, October 17). Do the Employment Statistics Lie? Retrieved October, 13, 2012, from ABC News: http://www.abc.net.au/unleashed/3574380.html.
Wessels, W. J. (2006). Economics. New York: Barron's Educational Series.