MICROECONAMICS

INSTRUCTIONS
Write an essay answering the question below. Marks awarded will depend on the quality of the reasoning exhibited, the ability to express your thoughts in a concise manner (including the use of diagrams) and the organisation of your answer.

Where appropriate draw diagrams to illustrate your answer.

analytically about macroeconomic theory and its relation to policy issues and will have to apply relevant macroeconomic concepts to the question.

QUESTION
What does Say’s Law imply for the operation of a free-market economy? Illustrate with a Keynesian 45-degree line diagram a level of economic activity that does not align with such an assertion. What might the Reserve Bank of Australia (RBA) do in response to such a situation? Explain, with the aid of appropriate diagrams, the impact of the RBA’s actions on the level of GDP. Also discuss the expected impact on unemployment and inflation.