Assignment 3 consists of one problem question worth 15 marks. Before attempting this assignment you are expected to have read Text chapters 12, 13 and 14. You are encouraged to make use of additional sources. Sources used in your answer should be fully referenced in APA 6th style.

Answer the following question ensuring that you apply economic principles or theory related to understanding the health of the economy and the need for government intervention to inform your analysis and support your decisions. Communicate your ideas with correct grammar, spelling and writing style and support your answer with diagrams and examples as necessary.

Question (15 marks)

Explain why a stable economic equilibrium requires the economy to be operating at an output level at which the aggregate demand curve, the long run aggregate supply curve and the short run aggregate supply curve all intersect.

Rationale

This assignment will give you practice in preparing an answer to a question which is similar to the type of questions you are likely to be asked in the examination.

The question addresses the following learning outcomes:

Learning Outcome 5: be able to critically examine and demonstrate why it might be necessary for government to intervene in the production of goods and services and in the distribution of income.

Learning Outcome 6: be able to examine critically the health of the economy as a whole through the analysis of major economic variables and advise on likely policy alternatives.