For each scenario, identify the primary shift that occurs. Shortly after COVID hit China, there were...

For each scenario, identify the primary shift that occurs.

Shortly after COVID hit China, there were many shipments of goods made in China that had to be stopped or delayed. Ignoring other simultaneous occurrences, how does the stoppage of the flow of goods from China affect the AD/AS model from the perspective of the US?

Question 8 options:

	Short run aggregate supply shifts to the right
	Long run aggregate supply shifts to the right
	Short run aggregate supply shifts to the left
	Aggregate demand shifts to the right
	Long run aggregate supply shifts to the left
	Aggregate demand shifts to the left

For each scenario, identify the primary shift that occurs.

One early impact of COVID was that a lot of households in the US freaked out and stockpiled consumer goods like toilet paper, before there were any signs of supply disruptions. Looking at the freak out in isolation and ignoring the other impacts of COVID, how would this affect the AD/AS model?

Question 9 options:

	Long run aggregate supply decreases
	Aggregate demand increases
	Short run aggregate supply increases
	Aggregate demand decreases
	Long run aggregate supply increases
	Short run aggregate supply decreases

Expert Solution

Solution:

1. With COVID hitting China, there were supply disruptions for US, so the supply curve would be affected and there will be no change in the demand curve. Further, this is a temporary setback, hence the short run supply curve will be impacted in given case scenario. Supply disruption reduces the supply, and so the short run supply curve would shift to the left.

Thus, the correct option is (C).

2. The impact of COVID as a freak out for US households, resulting in stockpiling will clearly result in a heavy demand for household products: to stockpile, all households will run to the shops and marts, rising the demand for such necessary products hugely. With no supply disruptions, supply curve will not be affected. The rise in demand will increase the aggregate expenditure, and shift the aggregate demand curve to the right.

Thus, the correct option is (B).

Rahul Sunny answered 2 years ago

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