The spread of COVID-19 has prevented many people from doing economic activities. It has increased unemployment...

The spread of COVID-19 has prevented many people from doing economic activities. It has increased unemployment and reduced consumption. Due to reduced consumption, many companies ended up bankrupt.

1) Draw a diagram to illustrate the state of the economy described above. Be sure to show aggregate demand, short-run aggregate supply, and long-run aggregate supply. What happens to the output and price level in the short run?

2) The government now starts to provide enormous financial support to prevent further corporate bankruptcy. What is the short-run effect of this policy on output and the price level? Explain using a graph.

3) Suppose, after implementing the financial aid for a while, the government has to call off the policy due to insufficient funds. This results in more and more companies ended up bankruptcy. Predict what happens to the economy in the long run.

Solutions

Expert Solution

due to COVID 19 pandemic reduced consumption shift aggregate demand curve left from AD to AD' and increased in unemployment cause leftward shift in short run aggregate supply curve from SRAS to SRAS' this cause left ward shift in potential GDP in long run.

in short run price level remain same at same price level output falls from Y to Y' as shown in diagram.

government giving financial support in short run which is an expansionary monetary policy which cause rightward shift in aggregate demand curve in short run in diagram initial equilibrium was E after fall in consumption and increase in unemployment equilibrium fall from E to E' but after apply expansionary monetary policy aggregate demand shift rightward from AD' to AD' again and at same price level output rises from Y to Y' and it achieve its initial equilibrium point E.

3) due to insufficient funds more company ended up bankruptcy in long run again aggregate demand curve shift to the left because of reduction in consumption in long run COVID 19 reduce consumption but government are not able to finance in long run which cause aggregate demand to fall again and economy again fall its potential GDP fall again to LRAS' and output fall to Y'.

please upvote

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

Has Covid-19 affected retirement for many people?

Predict the economic consequences of the spread of the COVID-19 on the economy of the United...

Predict the economic consequences of the spread of the COVID-19 on the economy of the United States in terms of (1) Gross Domestic Product (2) Consumption, (3) Investment, (4) Inflation, (5) The labor market, (6) The business cycle, and (7) The financial System. Just opinions do not count. Please use actual Macroeconomic concepts. Formulas, graphs, etc are welcome :)

a. Because of the COVID-19 pandemic, the unemployment rate increased from 5.8% to 13.2% Is this macroeconomics or microeconomics?

a. Because of the COVID-19 pandemic, the unemployment rate increased from 5.8% to 13.2% Is this macroeconomics or microeconomics? b. Restaurant owners have additional costs because of government regulations about cleaning and social distancing. Is this macroeconomics or microeconomics?

Covid 19 is spread through ?

To address the Covid Virus situation, government has implemented restrictions that have prevented many from working....

To address the Covid Virus situation, government has implemented restrictions that have prevented many from working. Modeling this as a decrease in the labor supply, present an analysis (using the IS-LM curves, AS-AD diagram, and labor market diagram) to show the impacts we should expect from the Classical perspective. (That is, assume the nominal wage adjusts to provide full employment.) For results, show in your analysis the restrictions are predicted to impact the employment level, nominal wage level, real wage...

(a) Covid-19 pandemics has caused disruptions in economic activities in most affected countries. One of the...

(a) Covid-19 pandemics has caused disruptions in economic activities in most affected countries. One of the worst effects is the increase in unemployment. (i) Explain one recovery measure that can help ease the unemployed workers. (ii) Using the Beveridge curve and WS-PS model, explain the impact of the recovery measure during the downturn on economy’s vacancy and unemployment rate. (b) (i) Discuss why a firm pays higher wages to its workers as compared to the other similar firms in the...

Many people are out of work as a result of COVID-19. This means that they will...

Many people are out of work as a result of COVID-19. This means that they will not be paying as much money in taxes so government revenue will decrease. At the same time, the government spending has increased as the government bails out businesses, increases spending on healthcare, and provides income assistance to a growing number of people. How does declining tax revenue and increasing government spending impact the government debt?

One representative from the CDC claimed that as many as 25% of people who have Covid-19...

One representative from the CDC claimed that as many as 25% of people who have Covid-19 may not be showing any symptoms. If this is true, what is the probability of randomly choosing 450 people who are experiencing no symptoms and 110 or less of them actually have the virus? Make sketches and label all variables and give the appropriate calculator command. What is the inequality that must be true in order to treat the sample proportions in this problem...

With the Covid-19 pandemic, many businesses were forced to close and, as a result, many people...

With the Covid-19 pandemic, many businesses were forced to close and, as a result, many people are now unemployed. 1) Please attach or link a relevant news article that discusses something about the struggles of either a commercial (business) or residential (person, family etc.) tenant that can no longer pay its rent due to these unprecedented time. 2) Describe how the tenants and their landlords, and possibly the government, are attempting to adjust to the situation. Feel free to include...

the covid 19 has caused adverse economic and health impact in many countries . discuss how...

the covid 19 has caused adverse economic and health impact in many countries . discuss how the affected countries are managing the situation in terms of following: financing of the above interventions within the budgetary system?

Subjects