Ib Economics Commentary - Aggregate Demand

1406 Words Feb 23rd, 2013 6 Pages
This article covers the first increase in housing prices in Australia in 2011, raising hopes that Australian housing prices may recover in 2012. Housing prices have also dropped, but recently, the average cost for a house has also risen. The article states that this is mainly because of low interest rates and shortage of supply.

Low interest rates (charges that borrowers pay to lenders for using the borrowed money), would cause a shift in demand (the capability and willingness to consume a commodity at a given price at a given time) to the right (from D to D1). The reason for this is because consumers are predicted to borrow more money at lower interest rates (as the rewards for saving money are less than if interest rates were higher),
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This would consequently lead to a small decrease in aggregate demand, and a small increase in aggregate supply

Australia: First House Price Rise in 2011
By Geoffrey Rogow and James Glynn
Date accessed: 24/04/2012 http://online.wsj.com/article/SB10001424052970204632204577129430120088096.html SYDNEY—Australian monthly house prices rose for the first time in a year in November, but concern remains that a deterioration in prices across the country will resume next year.
The gain was supported by the first interest-rate cut by the Reserve Bank of Australia since early 2009, and occurred ahead of the removal of a tax exemption for certain purchases. The RP Data-Rismark capital city home value index rose 0.1% in November from October, its first increase since 2010.
The November rise has spurred hope among brokers and the country's largest banks that Australian house prices could see a recovery in 2012, as interest rates potentially drop further and incomes receive support from a nascent mining boom.
"For Australia's capital city and regional markets this was the single best monthly result since December 2010, and augurs well for housing activity during the first quarter of 2012, which we project will rebound solidly," said Christopher Joye, director of property research firm Rismark.
Further buoying hope of a turnaround,