Question

Explain how each of the following would affect Australia’s aggregate demand, the short run and/or long run aggregate supply in the first round?

1. A fall in consumer confidence on the economy.

(b) An increase in the price of crude oil as a result of an oil shortage.

Answer 1

a) A fall in the consumer confidence in the market will shift the aggregate demand curve to the left and the new equilibrium will be at a lower output and lower price level, this will not affect the long run aggregate supply curve in the market.

b) This will shift the supply curve to the left and the new equilibrium will be at a higher price and lower output level in the market, the long run supply curve will not be affected in the short or the long run in this case as well.