Quick questions on Aggregate demand and aggregate supply influences (QCE Economics Unit 2)

QCAA marking guides reward explicit chains. Examples:

Higher confidence raises C. Measured by the Westpac-Melbourne Institute Consumer Sentiment Index.

Higher confidence raises I. Measured by the NAB Business Confidence Index.

The cash rate flows through to retail rates. Higher rates reduce C and I and dampen AD. The 2022-24 RBA tightening cycle is the textbook current example.

After-tax household income. Affected by wages, taxes (the 2024 Stage 3 cuts raised disposable income), and transfer payments.

AUD depreciation raises export competitiveness and makes imports more expensive (supports AD). AUD appreciation does the opposite.

Federal, state and local spending. The 2020-21 COVID-19 stimulus was the largest fiscal expansion in peacetime history.

Demand from trading partners. Australia's exports are sensitive to Chinese GDP (32 percent of exports), Japanese, Korean and ASEAN demand.

Net overseas migration of around 500,000 in 2023-24 supported AD through housing and retail demand.

Output per unit of input. Multifactor productivity has averaged 0.5 percent per year over the last decade in Australia, well below the 1.5 percent of the 1990s.

Higher business taxes and stricter regulation shift AS left. Microeconomic reform (National Competition Policy 1995-2005) shifted AS right.

Investment in machinery, infrastructure, R&D.

Mineral and energy endowment.

"RBA raises the cash rate → banks raise mortgage and business loan rates → households reduce consumption (especially durables) and firms cut investment → AD shifts left → real GDP growth slows → capacity utilisation eases → wage growth and inflation slow."

"Net overseas migration of 500,000 → larger consumer base raises C and housing demand (AD right) → larger labour force expands productive capacity (LRAS right) → real GDP rises; some upward price pressure in housing offset by easing wage growth."