Applied Economics

Running head: APPLIED ECONOMICS
Applied Economics
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1APPLIED ECONOMICS
Table of Contents
Answer 1....................................................................................................................................2
Answer 2....................................................................................................................................3
Reference....................................................................................................................................5

2APPLIED ECONOMICS
Answer 1
The AD/AS model is one of the most reliable tools in economics as it explains the
framework of economic factors in a single picture. The main factors that are discussed in this
theory are unemployment, inflation and economic growth. The Australia’s economic growth
can be explained through this. The AD/AS model explains that the fall in inflation rate shifts
the short run aggregate supply curve and also the long run aggregate supply curve to the right
and which in turn raises the real GDP by lowering the equilibrium point. That means, there is
a right shift of the aggregate supply that indicates the economic growth as the productivity is
increased. The long run supply curve indicates the potential GDP which is the GDP at full
employment which also shifts rightward over the time.
2010 2011 2012 2013 2014 2015 2016
0.056
0.058
0.06
0.062
0.064
0.066
0.068
0.07
0.072
Economic Growth
Economic Growth
Figure 1: Economic growth over the year
The above diagram shows the growth of GDP per capita which is rising over the time.
After the recession of 2008, the unemployment rate was falling from 5.8% in 2010 to below
5% in 2012. In Australia, the unemployment raised by 1.8% over a year in the mid of 2016
which was lower in last 3 decades. This happened because of lower amount of participation
of labour force which was due to long-term demographic trend like ageing of the population
and higher rates of engagement in education by the younger people (Chua & Robinson,
2018). The real wage had been influenced by softening in the labour market and raising the
capacity in the economy. This was due to declining inflationary expectations. However,
growth in wage strengthen the employment growth and reduced the unemployment rate
(Bishop & Cassidy, 2017). The inflation rate in Australia was 2.4% in 2013 and 2014 then in