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 sloping). 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 use monetary policy (and/or fiscal policy) to accommodate this shock? Describe what happens to the economy in response to this policy action.
-
(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-runaggregate 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 sloping).
-
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 use
monetary policy (and/or fiscal policy) to accommodate this shock?Describe what happens to the economy in response to this policy action.
-
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 3 images
