Australian authorities faced significant health and economic policy challenges during the COVID- 19 Pandemic, shutting down certain industries to protect public health. This shutdown resulted in almost 1 million jobs lost in April and May 2020, and a dramatic fall in consumers’ and firms’ confidence to spend and invest.
The effect of the COVID-19 Pandemic in Australia
Australian authorities faced significant
Describe the effect that a fall in confidence had upon output in the Australian economy using a Keynesian model of the macroeconomy. Ensure that your analysis includes the following:
a. the components of expenditure that are affected and why;
b. the adjustment process associated with moving from an initial equilibrium (before the onset of the pandemic) to a new equilibrium (after the significant job losses), i.e. the mechanism that leads to a change in output (including a relevant diagram);
c. an explanation of what the multiplier is and its role in explaining the fall in output; and
d. a discussion of the policy actions that can restore aggregate
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