Question

On a piece of paper (or on a tablet or computer) graph the following situations. Please upload as PDF, Word, JPG or PNG files. Use a new graph for each scenario, and be sure to label everything (the vertical, horizontal axes and the curves... Include LRAS, SRAS and AD. Label the inital curves SRAS1, LRAS1 and AD1)

Assume that the economy starts its initial equilibrium at both long-run and short-run equilibrium at potential GDP

1.Show the COVID-19 recession (assume there are leftward shifts in both the aggregate demand and short-run aggregate supply curves as peoples' income dropped and businesses closed, either voluntarily or otherwise) Label the new curves as AD2 and SRAS2

2. Read this (Links to an external site.) short article, Show the effect of the CARES act. Label the new curve AD3

3. In your own words, explain why the CARES act data suggests it was progressive in its impact

4. In your own words, explain why it might be a good thing that more of the CARES-act assistance went to those at the low end of incomes.

5. Is the spending multiplier for low-income folks larger or smaller than the one for high-income folks? Why?

Answer 1

1.AD is the total of C+I+G+(X-M).Any change in these factors changes the AD curve. An increase and decrease in these factors affect an increase and decrease in the AD curve. Change in GDP is the concept of the long run. By the AD-AS model, I will go to explain the business cycle (in other words, the recessions real world).
Shocks are An unexpected change in the economy which leads shift in the aggregate demand (AD) or short-run aggregate supply (SRAS) curve.
Impact of AD and SRAS curve in the short run.
In the short run AD is the total of C+I+G+(X-M). Any change in these factors changes the AD curve.
Suppose PositiveChange in AD shock. Increases in AD lead to increases in aggregate output in the business cycle.AD also causes an increase in the price level. Suppose Negative Change in AD shock. Decreasing in AD which leads to decreases in aggregate output in the business cycle.AD also causes a decrease in the price level. It is a recession phase
If there is a positive SRAS shock, there is a decrease in Input prices. which leads to a positive output gap in the economy. If there is a negative SRAS shock, there is an increase in Input prices. which leads to the negative output gap in the economy.It a recession situation.

2.Cares Act is the Act through which government provides facilities, Relief, and Benefit to the people. During the covid period GDP falls and unemployment rises AD falls President Trump signed Cared Act and $2.3 trillion is provided by the government for relief to household and business sector which leads to some increase AD curve as it leads to a decrease in unemployment level.
3.CARES act data suggests progressive impact because through this act government provides $2.3 trillion in the economy which is used to provide help to the household and business sector. Though this fund government tries to cut out unemployment in the economy which it rises during covid 19. Through this fund, the government helps a businessman in the production process and carry out business activities in the economy so that the demand for people can be fulfilled. And If the production rises employment also rises as the employment demand of people rises. So, it has a progressive impact on the economy.
4.It might be a good thing that more of the CARES-act assistance went to those at the low end of incomes because they need it. They need it for their survival. They need it for the daily requirement. Through this care fund government try to that low-income people can also survive during this difficult situation.
5.Spending of low-income flok is larger than high-income flok because low-income flok have more basic requirements than high-income flok. High-income flok are those whose spending is more than the average income they can fulfill their requirement but low-income flok is not able to fulfill their basic requirement so, spending of low-income folks is higher than high-income folks.