Question

Australia’s stimulus package to cushion the economic impact of COVID-19 pandemic is nearly 15% of 2019 GDP. Notable initiatives include: JobKeeper Payment ($1,500/fortnight), JobSeeker Payment ($550/fortnight), and Coronavirus Supplement ($550/fortnight). Using the AD-AS framework, explain how these initiatives will help the economy deal with the economic fallout from COVID-19.(the answer is expected to be around 200 words.)

Answer 1

The COVID-19 pandemic has halted the economic activities all around the world. The Australian economy is no different. To understand how the stimulus package will affect the Australian economy we first need to understand how the COVID-19 pandemic is going to affect the Australian economy.

The COVID-19 pandemic has affected both the aggregate demand and aggregate supply. The lockdown which was imposed to tackle the pandemic has completely broken the supply chain and the production has come to complete halt. As a result of which unemployment has been increasing which has affected the aggregate demand.

The Australian government has announced the stimulus package which accounts for the 15% of the GDP, is going to help tackle the economic repercussions of COVID-19. The notable initiatives like job keeper and job seeker payment is going to help boost aggregate demand in the economy via the private consumption component C of aagregate demand. Since many people lost their employment due to COVID-19 this payment is going to help them a lot. And once the demand in the economy economy recovers the aggregate supply eventually responds.

The economic stimulus of 15% of GDP may not get economy back at the pre COVID-19 level of output but it's going to help a lot in minimizing the economic impact of COVID-19 in Australia.

Diagrammatically it can shown as follows,

Initially australian economy was at point A where AD and AS intersects and the equilibrium equilibrium output was at Y* and corresponding equilibrium price was at P*. After the COVID-19 pandemic aggregate demand shifts leftwards to AD' and the new equilibrium is at Ponit B Where the equilibrium output is at Y' and corresponding equilibrium price is at P'.

After australian takes key steps to revive demand, initiatives like job seekers and job keepers payment. The aggregate demand AD shifts rightwards to AD''. The new equilibrium is at point A' where equilibrium output is at point Y'' and the corresponding equilibrium price is at P''.