Relate the following Covid-19 newspaper headlines to shift the C, S, I, and AE functions and...

Relate the following Covid-19 newspaper headlines to shift the C, S, I, and AE functions and to changes in equilibrium national income. Provide GRAPHS that show the shift.

"Stock market falls in response to sharp increase in Covid-19 cases.

Expert Solution

A fall in stock market results falls consumer confidence in the economy. It affects the financial health of economy. If stock market goes down, investors would lose their money and return. They consumers and investors would reluctant to spend money in the both goods market and money market. It would make a recessionary situation economy. Suppose economy is initially equilibrium where aggregate demand curve an aggregate supply curve intersects and thus determine Y level of output. If the stock markey falls, consumers and investors become pessimisstic. They will reduce the consumption and investment and they increases their saving. Fall in consumption would make downward shift of consumption function and investment function. It makes an upward shift of saving function.. Fall in consumption and investment, drives down the aggregate demand for good and services in the economy. It would make a downward shift of AD curve. It would reduce the output from Y to Y1

Rahul Sunny answered 2 years ago

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