Question

What are Canada's recent macroeconomic problems? Describe the macroeconomic phenomena using examples diagrams and equations. Finally provide fiscal and monetary solutions to the problems

Answer 1

Covid-19 pandemic and the measures taken to contain the spread the virus has plunged the world economy in an unprecedented recession. Shutting down of businesses and economic activities across the country has led to millions of job losses ( unemployment ) and closing down of firms which in turn has led to steep fall in aggregate demand and disruption in supply chain in the country.

Real GDP has decreased from Ye ( real GDP at equilibrium ) to Y2.

Expansionary fiscal policy coupled with a favorable central bank's expansionary monetary policy can revive aggregate demand, subsequently leading to an increase in real GDP growth, and employment level in the country.

Expansionary fiscal policy leads to an increase in real GDP from Y1 to Yf at price level P2.