How has the large decrease in aggregate demand (the Coronavirus demand shock) affected real GDP and...

How has the large decrease in aggregate demand (the Coronavirus demand shock) affected real GDP and the price level? Explain how and why the spread of the virus has impacted consumer and business investment spending and how it has changed aggregate demand?

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Expert Solution

Aggregate demand shows the Negative relationship between price and GDP . Aggregate supply shows thepositive relationship between price and GDP . Equilibrium is where both the curves intersect each other . So as we know due to large decrease in aggregate demand . AD curve will shift backwards or leftwards causing fall of real GDP as well as price level .

As spread of unprecended shock has tremendously flared up , it have totally damage the economy and lead to plunging stage everywhere in the world . This cumbersome and convolated problems has lead to stigma and stage of jolt for almost every company . As we know there are lockdown almots everywhere in the world and people are also afraid and scared from getting themselves involve into a problem ,. In other words , there is a lack of consumer confidence in the markets , no one is going outside to buy the products instead to necessary items . There is a dearth of consumer confidence which will lead to dwelling of consumption in the countries which futher have a massive impact on aggregate demand . Moreover due to lack of business , investors are not showing their interest to invest further in any of the projects which further adds to problem . And lead to falling of aggragte demand .

Rahul Sunny answered 2 years ago

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