Assume the Australian economy is originally at the long-run equilibrium.
An abrupt house price crash sends shockwaves throughout the economy.
In response to such a shock, households bring their spending on durable goods to the bare minimum, while firms cancel all future upgrade or expansion projects.
Required:
(a) Explain how the long-run
(b) Clearly explain how the above shock would affect the key
(c) In order to counteract the above shock, do you recommend the government to implement expansionary fiscal policy or contractionary fiscal policy? Clearly explain why.
(d) Clearly explain what actions the government can undertake in order to implement the fiscal policy stance recommended in (c).
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