The Australia Prime Minister Mr Melcom Turnbull has taken several steps to reduce government budget deficit by cutting expenditure in all fronts, leading to great uncertainty and as a result, people...

The Australia Prime Minister Mr Melcom Turnbull has taken several steps to reduce government budget deficit by cutting expenditure in all fronts, leading to great uncertainty and as a result, people are reluctant to spend and invest. Against this background, the Reserve Bank of Australia has lowered the official cash rate, and consequently commercial banks have lowered their interest rates for the borrowers. (a) Do you think that a fall in interest rate would lead to an increase in business investment? Why? Discuss. (b) Assume that there has been a rise in business investment in response to the lower interest rates, what would happen to aggregate demand curve, real GDP and price level? Discuss using an appropriate diagram.