Question

1) Draw a generic Aggregate Supply and Aggregate Demand curve on a set of axes. Label vertical and horizontal axis appropriately and indicate where the macroeconomic equilibrium is.

2) Then, find a current events article that discusses some macroeconomic even that will affect either AS or AD. Represent this effect using a rightward or leftward shift as appropriate.

3) Use your model to interpret the effect of the event from your article or scenario on the price level, output, input, and unemployment for the relevant economy.

Answer 1

1) Aggregate demand curve is downward sloping showing a negative relationship between price and quantity demanded while aggregate supply curve is upward sloping showing positive relationship between price and quantity supplied. Equilibrium occurs when demand equals supply. Here equilibrium occurs when price is P and output level is Y and economiy is at its equilibrium at point A.

2) Effect of coronsvirus on economic supply of goods: Due to virus spreading many nations have stopped trading with each other. In food importing nations there would be less supply of goods as they are not able to import. It will shift the aggregate supply curve to its left from AS to AS1 while aggregate demand curve remains the same.

3) It will raise the level of prices from point P to P1 and output reduces from Y to Y1. As output level is reduced, less number of people are needed to produce those goods which will raise unemployment level.