Discuss about the shifting aggregate demand

Reference no: EM131774716

Question: Assume the Australian economy is initially in a long run equilibrium, with real GDP equal to $1.5 trillion. Suppose, now, that there is a global stock market boom -- which enhances real wealth significantly, shifting aggregate demand (AD) to the right, and increasing real output, in the short run, by $60 billion. Assume LRAS does not shift over time. If neither the government nor the reserve bank change their policies in response to this shock, then, ceteris paribus, in the long run:

1. The economy would stay stuck, with GDP at $1.56 trillion.

2. The economy would recede because AD would automatically move back.

3. The economy would return to its initial equilibrium because the SRAS would move to the right.

4. The economy would return to its initial equilibrium because AD would move to the left.

5. None of the above.

Reference no: EM131774716

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