Macroeconomics Assignment: Analysis of Demand and Labour Markets

This macroeconomics assignment analyzes two key areas: the impact of increased demand from China on Australia's economy and the relationship between leisure and the labour market. The first part examines how increased exports shift the aggregate demand curve, leading to a rise in real GDP, an inflationary gap, and changes in various expenditure components, including disposable income and government expenditure. The second part delves into the labour theory, exploring the inverse relationship between the supply of labour and the wage rate, while also considering the impact of leisure time. It analyzes how preferences, income levels, and other factors affect the labour supply curve, and how shifts in this curve influence employment levels and wage rates. The assignment uses figures to illustrate the concepts and provides references to support the analysis.

Running head: MACROECONOMICS
Macroeconomics
Name of the Student
Name of the University
Author note

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Answer 1- Australia and the Long Boom
The reason behind the affect of demand on the Australian resources was mainly the
increase in the demand from china. This has a direct impact on the total export of Australian
economy. With an increase in export of the economy, price remaining constant, the aggregate
demand curve shifts rightward from the equilibrium demand curve. This increases the real GDP
of the economy and causes an inflationary gap (Carvalho, and Rezai 2015). This in turn increases
the total expenditure as the country reaches to its full employment level. Thus, the income of the
people increases which leads to an increase in the purchasing power. However, due to this
various components of expenditure is affected.
Figure 1: affect of increase in export on AD curve and real GDP
Sources: (Bayoumi, and Eichengreen 2017)
From the above figure, it can be seen that with an increase in the export of the country the
aggregate demand curve shifts from AD1 to AD2, which causes a rise in the rate of real GDP in
the country. Various components of expenditure is affected due to increase in the real GDP and

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nominal GDP of the nation. The first component is the disposable income in the hand so fteh
people will increase thus increasing the purchasing power of the people, which in turn increase
the household expenditure. The next component is the net export rate which will get affected by
an increase in export because net export= (export-import). Thus, increases in export will increase
the differences between export and import. An increase in GDP means that there is an increase in
inflationary gap. This requires the government to curb the total expenditure in the economy. This
shows that the expenditure of the government will decrease as a consequence of an increase in
GDP in Australia (McCombie, and Thirlwall 2016).
Answer 2- Leisure and the Labour Market
According to the labour theory, there is a direct relationship between the supply of labour
and the wage rate. This means that as the wage rate increases the supply of labour also increases.
However, other factors also affect the supply of labour such as the leisure period that the labour
wants to spend (Disney and Gathergood 2016). However, leisure is the opportunity cost of labour
time given. An increase in labour hours means the the labour is giving up some more amount of
leisure hour which he could have enjoyed. Various factors affect the number of leisure hour a
labour chooses depends on factors such as preferences, income level, population and
expectations. A change in preference of the labour towards leisure will lead to an increase for
leisure spent. This will lead to a leftward shift of labour supply curve (Fleetwood 2014).

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Wage rate
Hours worked
HE HG HF
E
G
F
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Figure 2: shift in hours worked and wage rate
Source: (Author creation)
An increase in labour has two important affect on the company and the income of the
worker. The employment level falls, as now there will be less amount of labour available for the
company. Most of the workers will be preferring leisure upon work hours. This in turn affects the
wage rate which increase compared to previous level because the company will now have less
labour and makes them work for longer hours and offer them more wages (Ravindra and Amey
2014).

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References
Bayoumi, T. and Eichengreen, B., 2017. Aftershocks of Monetary Unification: Hysteresis with a
Financial Twist (No. w23205). National Bureau of Economic Research.
Carvalho, L. and Rezai, A., 2015. Personal income inequality and aggregate demand. Cambridge
Journal of Economics, 40(2), pp.491-505.
Disney, R.F. and Gathergood, J., 2016. House prices, wealth effects and labour supply.
Fleetwood, S., 2014. Do labour supply and demand curves exist?. Cambridge Journal of
Economics, 38(5), pp.1087-1113.
McCombie, J. and Thirlwall, A.P., 2016. Economic growth and the balance-of-payments
constraint. Springer.
Ravindra, H. and Amey, A., 2014. Inter-sectoral Terms of Trade and Aggregate Supply
Response Ingujarat and Indian Agriculture.