Question

I’ve got a three part question:

(a) As a response to the recent COVID-19 outbreak, the Commonwealth Government put in place lockdown restrictions. Using the dynamic AD-AS framework, analyse and demonstrate the impact of the COVID-19 pandemic on the level of output (or real GDP), unemployment, and inflation.

(b) In response to the COVID-19 pandemic, in March 2020 the Commonwealth Government announced a fiscal stimulus which included income support for workers and businesses hit by the pandemic. Using the same dynamic AD-AS framework used in part (a), explain and illustrate the effect of the fiscal stimulus on the level of output (or real GDP), unemployment, and inflation.

(c) Using the same dynamic AD-AS framework used in part (b), show what the impact of the fiscal stimulus would have been if Australia had no interactions in trade or finance with other economies (i.e. if Australia was a closed economy).

Answer 1

A) Covid 19 has it influence on commonwealth nations. Due to covid 19, people are in trouble and dangerous situation   Toshield the lives of nation, lockdown has been imposed by commonwealth goernment.

Due to lockdown, there is complete recession in commonwealth nations because government restrict output,and employment activities.. There is decrease in income , output and employment. Aggregate supply has decreased and due to decrease in supply, production has mitigate, workers get unemployed and real and nominal income has reduced. This also have impact on the aggregate demand. People have lost their belief in government and force to 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 commonwealth nations increases and economic growth decrease

B) Take action by government in the form of goveernment stimulus

Government of commonwealth nation decided to provide stimulus package to give relief to citizens. Due to the stimulus package new investments take place, output, income and employment will generate and real GDP will increase and atthe same time aggregate consumption will rise again economy will try to achieve full employment and cover the loss take place due to covid 19.

It can be explained with diaram

C) If Australia is a closed economy then by adopting the stimulus package , real GDP will increase . Income, output and empoyment inside will increase.But consumption and supply will increase less due to the no import and export from other nations