Assignment First


As per the context is undertaken, the risk of moving back of RBA to an easing bias is depicted to be showing the recognition of the below trends of the domestic growth. Due to the lowering of the interest rates and the increment of the demand of the houses, it clearly explains the aggregate demand curve which is depicted to be remaining stable with the removal of the prices from the P1 to P2. The sudden breakdown of the expectation of the RBA enabled the RBA to move back from the market of what he had decided to do. The RBA thought of keeping the interest rate at a lowering position for the purpose of bringing the economy back to the stability position but the recognition of the below trend growth is making the RBA to move back (Taylor, 2005). It is due to this reason; the business environment is depicted to be falling by showing the decrement of the interest in the housing consumptions. The contribution of the economic growth is the fourth quarter is illustrated as the major component that enables the enhancement of the structure. Since the business growth is depicted to be in the stagnate point, therefore the budget became very much tough to be forecasted and for this reason the removal of RBA from the market is taking place.

Question 3

The investment means the capital expenditures. Investment is the component of aggregate demand. The investment spending takes about fifteen percent of the aggregate demand which is not as important as the consumer spending which accounts for 66 percent. However, if the investment increases then the aggregate demand also increases. It relies on the economic situations that is if there is a situation of lower consumer spending and falling prices of houses then there is increases in investment which may be not sufficient to increase the aggregate demand. In the long run, the increase in investment can increase the capacity of production and also increase in the aggregate supply. The investment can enable to increase sustainable aggregate demand. Thus, the increase in the capacity will lead to the increase in the aggregate demand. At full capacity, aggregate demand of an economy increases and there would be inflation (Taylor, Stonebarger and Leven, 2005). In the economy, if there is a share capacity then there would be increase in the investment that could led to major impact on the economy. The initial increase in the investment leads to increase in the outputs and more people will get more income that is spending causes increase in the aggregate demand. It imposes significant impact on the employment, price level and output as explained by the aggregate demand model. The Reserve Bank should take action in order to keep the economy in a stable position. The increase or decrease in the demand and supply of investments can lead to the increase or decrease in the outputs.