Question

The coronavirus (COVID-19) is affecting 210 countries and territories around the world. As of 12th June 2020, in Oman 21,071 cases of COVID-19 have been reported, including 96 deaths. The coronavirus (COVID-19) outbreak is a major health crisis and disruptions to the global economy. The situation is getting severe due to lockdown as measure to contain the virus.

a). You are required to use aggregate demand and aggregate supply analysis, explain in detail how COVID - 19 affect each component of aggregate demand and aggregate supply of Oman’s Economy

B. Draw diagram of aggregate demand and aggregate supply and explain the effects COVID -19 Oman’s Equilibrium real GDP and price level, unemployment and economic growth.

  

C. Explain appropriate fiscal policy and monetary policy to combat the effects of COVID-19 on Oman’s economy.

Answer 1

Covid 19 has it impact upon all the nations. Due to its, people lost their lives. To protect the lives of nation, lockdown has been imposed by nations.

Due to lockdown, there is complete recession in Oman. There is decrease in income , output and employment. Aggregate supply has decreased and due to decrease in supply, production has reduced, worker get unemployed and income has reduced. This also have impact on the aggregate demand. People have lost their belief in demand and consume less goods and services.

Due to decrease in aggregate demand, demand curve shifts backwards and due to decrease in aggregate supply , aggregate supply curve shift backwards . Due to that equilibrium price increases from p to p1 and equilibrium GDP reduced from Q to Q1. Due to decrease in real GDP unemployment in Oman increases and economic growth decrease

Take action by monetary and fiscal policy-

Fiscal policy used by fed is expansionary . Taxes are reduced and spending is increased. Due to that aggregate supply curve will shift rightwards and again full equilibrium will be attained. The reason is expansionary fiscal policy increase production and increase in production provides employment and employment leads to increase in income.

Expansionary monetary policy-discount rate is reduced and central bank buys government securities through open market operations. Increase money supply in banks. Interest rate falls and borrowing becomes cheaper. Investment increases. Increase in investment leads toward increase in production and increase in production provide employment and employment leads to increase in income.