China becomes unhappy with Australian politics and imposes economic sanctions. The result is a severe reduction...

 

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China becomes unhappy with Australian politics and imposes economic sanctions. The result is a severe reduction in Australia's exports. 1. Explain and illustrate the immediate impact of these sanctions via the IS-MP model Assume the Reserve Bank of Australia (RBA) keeps the nominal interest rate constant. 2. Now include the Phillips curve and allow the economy to evolve over time. Explain and show in a diagram what will happen to short-run output, inflation, and real interest rates if the RBA keeps the nominal interest rate constant. 3. Explain what the RBA should do to stabilize output and inflation. 4. Unfortunately, after recovering from China's sanctions, Australia's bad luck continues. It is then hit by a severe earthquake that causes damage to important infrastructure. Using the IS-MP framework explain how short-run output and actual output are likely to be affected by this disaster. 5. Following the earthquake, Australia's policymakers mismeasure potential output and think that it has largely remained the same as before the disaster. What is the danger of this measurement mistake? Explain. China becomes unhappy with Australian politics and imposes economic sanctions. The result is a severe reduction in Australia's exports. 1. Explain and illustrate the immediate impact of these sanctions via the IS-MP model Assume the Reserve Bank of Australia (RBA) keeps the nominal interest rate constant. 2. Now include the Phillips curve and allow the economy to evolve over time. Explain and show in a diagram what will happen to short-run output, inflation, and real interest rates if the RBA keeps the nominal interest rate constant. 3. Explain what the RBA should do to stabilize output and inflation. 4. Unfortunately, after recovering from China's sanctions, Australia's bad luck continues. It is then hit by a severe earthquake that causes damage to important infrastructure. Using the IS-MP framework explain how short-run output and actual output are likely to be affected by this disaster. 5. Following the earthquake, Australia's policymakers mismeasure potential output and think that it has largely remained the same as before the disaster. What is the danger of this measurement mistake? Explain.

Answer rating: 100% (QA)

1 In the immediate impact of Chinas economic sanctions on Australias exports we can analyze the effects using the ISMP model The ISMP model combines the IS curve which represents the equilibrium in th... View the full answer