3. a) Using AD-AS model, explain how a negative demand shock due to COVID 19 will affect the economy in the short run and long run (Show short run and long run adjustment in a single diagram).
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3. a) Using AD-AS model, explain how a negative
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- How is pressure for inflationary price increases shown in an AD/AS model?What is the Keynesian zone of the SRAS curve? How much is the price level likely to change in the Keynesian zone?a. write down the expressions for the AS and AD curves and interpret the expressions. what is the intuition behind the two curves? what must be true of the model parameters and variables in the long run equilibrium? b. analyze the effects of an oil supply shock that causes a temporary increase in the inflation, using the three-equation model. assume that the shock lasts for one period and then assumes the value 2%. describe the mechanisms that bring the economy back to long-run equilibrium. what happens to aggregate supply? c. consider an economy that starts out in steady state when the central bank decides to make the inflation target more ambitious. analyze the effects of a decrease in the inflation target from m to mt. explain the mechanism behind the adjustment to the new steady state.
- Discuss how the AD/AS model can explain economic growth, recessions, as well as changes in unemployment and inflationary pressures. (11.5)The figure above shows the Aggregate Supply (AS) and Aggregate Demand (AD) curves for an economy that is currently at equilibrium producing Y0 units of output. What would be the result of a negative shock to AD if there is no change to AS? Question 13Select one or more: a. Decrease in output b. Increase in price levels c. Decrease in price levels d. Increase in outputThe Covid-19 crisis and lockdown has been a supply-side shock to the South African economy. In response, the government offered a R500bn stimulus package to help cushion the blow. Use the AD-AS model, in conjunction with the IS-LM-BP, to explain the supply and demand dynamics of the shock and policy response. Where will equilibrium income and prices settle?
- (Please attach a graph showing your work for each question) Suppose that the oil price sharply increased for a while, which increased production costs, causing an adverse supply shock. Use the AD-AS model to show the effects on output and the price level in both the short- run and long-run. Show the adjustment process of the economy from the short-run to the long-run. What is the effect on unemployment in short-run and long-run? Can policymakers do something to accommodate this shock? Would the outcome be different in this case?(Please attach a graph showing your work for each question) Suppose that the oil price sharply increased for a while, which increased production costs, causing an adverse supply shock. Use the AD-AS model to show the effects on output and the price level in both the short- run and long-run. Show the adjustment process of the economy from the short-run to the long-run. What is the effect on unemployment in short-run and long-run? Can policymakers do something to accommodate this shock? Would the outcome be different in this case? Suppose that the coronavirus pandemic (COVID 19) in 2020 has resulted in a leftward shift of the aggregate demand curve (it has also shifted the short-run aggregate supply to the left, butlet’s ignore this effect here for simplification). Use the aggregate-demand/aggregate-supply model to show the effects on output and the price level/inflation in both the short run and long run (assume that the short-run aggregate supply curve is upward…The figure above shows the Aggregate Supply (AS) and Aggregate Demand (AD) curves for an economy that is currently at equilibrium producing Y0 units of output. What would be the result of a positive shock to AS if there is no change to AD? Question 12Select one or more: a. lower output levels b. higher price levels c. lower price levels d. higher output levels
- Draw the AS-AD model for the following scenario: The economy is hit by a negative AD shock. Assume there is no monetary or fiscal policy implemented, and the AD shock is permanent. Make sure to include the initial equilibrium, the short-run equilibrium, and the new long-run equilibrium. Label the axes and the curves.n the AD-AS model, assume that an economy’s aggregate demand, denoted by QD=400−P, and SR aggregate supply, denoted by QS=P, currently intersect at price level = $200 and the full employment output level = 200. What curve would have shifted if a new short-run equilibrium were to occur at an output level of 300 and a price level of $300? Group of answer choices SRAS shifts leftward. AD shifts leftward. SRAS shifts rightward. AD shifts rightward.Describe an economic environment which would be characterized by the term "stagflation". Using an AD - AS diagram, depict and given an example of a macroeconomic shock that would take an economy from a long - run equilibrium to a situation of stagflation. Label all points on the graph completely and point out the key characteristics associated with stagflation on your graph.