Question

Use the static AD-AS model to explain how the JobKeeper policy worked to sustain the economy (even though unemployment increased).

Answer 1

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Question:

Answer:

According to new classical model or AD-AS model the decreasing of AD is the main reason of economic recession. AD is directly affected by the following factors- consumption, investment, government spending and net export. When these factors increase its increase AD and vice-versa. When AD decrease its decrease output and price level. Decreasing price level decrease production and decreasing production increase unemployment and decrease income level. Decreasing income level further decrease AD. In AD cosumption play an important role and constribute for more than 61%. When the economy getting fall or get inter into the recession then its negatively affect the confidence level of consumers and investors (producers) that negatively affect AD. But when the government increase spending and transfer payment through social security scheme like, unemployment benefits or subsidy through jobkeeper policy etc then its increase income level of people and its increase their spendable income that incraese consumption level. When consumption increase its increase AD and when AD incraese its increase production and price level. increase price level increase production level that decraese unemployment and increase income that increase AD further and boost economic growth. So, through the jobkeeper policy, the eligible employee will get susidy of a certain amounts at a specific interval on regular basis for a presepcified time period. It will increase the income level of benefits holders and increasing income will increase AD and increasing AD will increase price level and output level that will boost the economic helath of the country.

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