1. Starting from long-run equilibrium, use the basic (static) aggregate demand and aggregate supply diagram to show what happens in Australia, in both the short run and the long run, when there is an decrease in GDP in the US. Explain your diagram. (2 marks). Explain how each of the following events in questions 2 and 3 would affect the aggregate demand curve. No graph required

2. Domestic prices decrease relative to prices in Australia's trading partners. (1 mark)

3. Domestic household's purchase of new houses decreases. (1 mark)

4. Consider the situation where there has been an increase in real GDP growth rates, inflation, and employment rates. What part of the business cycle do you think the economy is currently in? what other indicators could you use to confirm this?