MACROECONOMICS Macroeconomics Expansionary and contractionary shifts are two possible changes in the aggregate

demand and aggregate supply model. If the Central Bank lifts interest rates, the money supply would be decreased that indicates a contractionary shift of the model. Increase in international oil prices produces increase of local prices that provokes the same scenario. Appreciation in the foreign exchange rate denotes the country's currency depreciation that would create an expansionary shift of the model. If there is an increase in private domestic investment spending, it stimulates the economy, increases wealth level of population and produces an expansionary shift of the model. Fall of real estate prices produces the same effect on wealth level and results in the same consequences. If main exports fall in price while the goods the country imports from abroad rise in price, it would eventually provoke increase of net exports and an expansionary shift of the model.

Graph 1. A contractionary shift in the aggregate demand and aggregate supply model.

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Graph 2. An expansionary shift in the aggregate demand and aggregate supply model.

Contractionary and expansionary shifts of the model are presented in graphs above that allows to trace the short- run and long- run effects of the described events. 'A', 'B' and 'C' denote intersections. The article under consideration is devoted to a competitive ranking of an Australian economy. The article states that Australias macroeconomic situation is satisfactory in the current context...Despite repeated budget deficits, its public debt amounts to a low 23 per cent of GDP, the third lowest ratio among the advanced economies, behind only Estonia and Luxembourg (A staff reporter, 2012, p.1). The article refers to the principles of general evaluation of the country's macroeconomic situation. However, despite the optimistic financial data, the article stresses that Australian economy is far from its perfect condition and is still characterized by decrease of indicators of the nation's competitiveness. One of the primary concerns associated with the Australian economy is the country's labor market. It is known that Australia's unemployment level in April came in at 4.9 per

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cent, according to the Australian Bureau of Statistics that is surprising taking into account firms' uncertainty, difficult domestic conditions, and job shedding in a lot of sectors (LM Investment Management LTD, 2012, p.1). Hence, there is no wonder that a lot of experts perceive the official information with certain skepticism. If there is a sustained rise in private investment spending, there would be observed certain important implications. According to the simple Keynesian model, the equilibrium income would rise with sustained rise in investment spending. Simple Keynesian model is Y= C+I+G where consumption C = a+ mpc*(Y -T). This formula proves rise of equilibrium income as a result of a sustained increase in private investment spending. Inflation is defined as a rise in the general level of prices of goods and services over a particular period of time. Deflation is the opposite process indicating decrease of the general prices of goods and services. Interest rates reveal the cost of borrowing funds in an economy. Exchange rates demonstrate the cost of one currency in terms of another currency. Hence, interest and exchange rates relate to different exponents, nevertheless, they both are equally important for defining country's policies. Budget deficit indicates the amount by which spending exceeds income. The balance of payments deficit indicates a different aspect of economy- it is usually defined as a state threatening a country's ability to meet its obligation to exchange its currency for other currencies or for gold at fixed exchange rates (Stein, 2008, p.1). Trade deficit shows the amount by which the country's imports surpass the value of its exports. Net foreign debt demonstrates the difference between gross foreign debt and gross foreign claims. Hence, this exponent refers to another sphere of country's economical activity in comparison to trade deficit. A rise in the money supply on the money market would lower the interest rate. It would provoke currency depreciation, increase of attraction of domestic goods that would

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stimulate output growth. Output growth would result in rise of employment. However, rise of employment would provoke additional costs that would eventually raise the prices. Demand pull inflation occurs when demand for goods increases that results in increase of the price. For example, if a particular item is popular, the manufacturer may raise its prices just on the basis of its popularity. Cost pull inflation happens when costs of making the product or service rise. In this case, cost push inflation is essential because it preserves profit margins of manufacturers and helps their business to develop. In some cases, it is difficult to establish the extent to which a given rate of inflation is demand pull or cost push. For instance, if there is a significant demand for a particular item, there may be a higher production cost to produce the item. In general, the Australian economy has been growing for twenty one years consecutively. Low interest rates increased money supply, employment and output that reflected in annual growth of GDP. However, high economic growth provokes rising of interest rates that is challenging because it would increase cost of borrowing and decrease consumer spending. Inflated real estate prices and a high dollar may cause problems as well. For example, it may lead to a decreased investment. Expansionary policy of the Central bank would provoke decrease of the interest rates and increase of the money supply. As a result, it would boost the development of economy. These measures are recommended if the rate of development of the country's economy is not satisfactory. The Australian dollar soared due to the global financial unrest, a stable growth of domestic economy and production. However, the stronger the Australian dollar is, the harder competition Australian exporters face on the global market. It causes de- industrialization and unemployment (Denning, 2012, p.1). Hence, wealth level of population decreases as well as consumer spending.

MACROECONOMICS References

A staff reporter. (2012). Australian maintains competitive ranking: WEF report. Web. 5th Sept. 2012. Retrieved from http://www.businessspectator.com.au/bs.nsf/Article/Australianmaintains-competitive-ranking-WEF-repor-pd20120906-XUSN9?opendocument&src=rss

Denning, D. (2012). Why the Australian Dollar Isnt Safe and the RBA Will Act Soon. Web. 5th Sept. 2012. Retrieved from http://www.moneymorning.com.au/20120215/why-theaustralian-dollar-isnt-safe-and-the-rba-will-act-soon.html

LM Investment Management LTD. (2012). Jobless Rate in Surprise Fall. Web. 5th Sept. 2012. Retrieved from http://www.lmaustralia.com/News/2012/Jobless-rate-in-surprisefall.aspx

Stein, H. (2008). Balance of Payments. Web. 5th Sept. 2012. Retrieved from http://www.econlib.org/library/Enc/BalanceofPayments.html