Question

What do you think is the impact of COVID-19 on the aggregate demand and aggregate supply curves? Based on your answer, how did the pandemic affect the quantity of output and the price level in the economy? Explain.

Answer 1

a) Due to the pandemic both the aggregate demand and aggregate supply in the market will shift to the left, demand will fall due to lack of income and people in the market loosing their jobs and supply curve will shift due to global supply chain disruption and shutdowns.

the new equilibrium in the market will be at a same price level but at a lower output level, we are assuming that the demand and supply both have fallen simultaneously and at equal proportion. This will shrink the GDP of the world and that is exactly what the pandemic has done in the market.