Question

1. Recall that aggregate demand AD is determined by all of the components of desired aggregate expenditure.

COVID-19 has caused the global economic landscape to change very quickly. Furthermore, an oil price war involving Saudi Arabia and Russia has resulted in a dramatic decline in oil prices.

1. [1 point per row] For each of the events below, state which component(s) of aggregate demand is affected, provide a brief explanation, and whether the effect is an increase or decrease. The first is done as an example.

Event	CoMP.	Explanation	effect
The government forbids non-essential travel and closes certain types of businesses.	C	Households are prevented from consuming non-essential goods.	Decrease
Due to the uncertain economic environment, businesses decide not to purchase new equipment.
The Bank of Canada lowers the interest rate three times in one month.
Household wealth decreases when the value of stocks plunge.
Many workers anticipate that they will eventually be laid off and their income will fall by 45% when they start collecting employment insurance (EI).
The government announces it wants to purchase a large amount of medical supplies from Canadian manufacturers.
Families which were planning on building a new home decide not to.
As oil is a major Canadian export, the low price of oil results in less demand for Canadian dollars, and the value of the Canadian dollar goes down relative to other currencies.
Other countries are also severely affected by COVID-19. Many of Canada’s trading partners also have a recession.

1. Based on the size and direction of the effects above, do you think that overall desired aggregate expenditure has increased or decreased? Would this result in a leftward or rightward shift in the AD curve?

Answer 1

For the table, refer to the image uploaded. i have started from the 2nd event as the 1st one is already done.

For the second part, I have summarized the effects based on their size and direction and reached the conclusion that AE falls and AD shifts leftwards.