Consider how the COVID-19 pandemic has caused major disruption in global supply chain affecting the supply of critical inputs to production. This has negatively affected the supply side of Singaporean economy on a large scale.] (a) [Illustrate the impact of this supply-side disruption on the Singaporean economy using the AD-AS model. Assume that the economy was initially in good shape and operating at its potential represented by Y*. Provide an explanation to explain what is happening in your diagram. (100 words)] (b) [Following this shock to the economy, as described in part (a) of this question, indicate what would be the response of the Central Bank for each of the scenarios below. Highlight any trade-offs that the Central Bank must consider for each of these potential responses (100 words total) Scenario (i) - Assume the Central Bank is most concerned about inflation. Scenario (ii) - Assume the Central Bank is most concerned about unemployment. Explain the policy action that the Central Bank would take under each assumption, and note the potential trade-off associated with each policy action (100 words maximum for each scenario). Include an AD-AS diagram for each to illustrate the effects on the economy.] (c) [Suppose, instead of the policy actions described in part (b), that there is no policy intervention to address the fallout of the shock described in part (a). In the absence of any policy intervention (monetary or fiscal), what type of free market adjustment would need to occur for the economy to eventually return to Y*? Include an AD-AS diagram to illustrate this adjustment process (50 words). (Hint: Start with the scenario you illustrated in your answer to part (a).]
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Question 3
[Consider how the COVID-19 pandemic has caused major disruption in global supply chain affecting the supply of critical inputs to production. This has negatively affected the supply side of Singaporean economy on a large scale.]
(a) [Illustrate the impact of this supply-side disruption on the Singaporean economy using the AD-AS model. Assume that the economy was initially in good shape and operating at its potential represented by Y*. Provide an explanation to explain what is happening in your diagram. (100 words)]
(b) [Following this shock to the economy, as described in part (a) of this question, indicate what would be the response of the Central Bank for each of the scenarios below. Highlight any trade-offs that the Central Bank must consider for each of these potential responses (100 words total)
Scenario (i) - Assume the Central Bank is most concerned about inflation.
Scenario (ii) - Assume the Central Bank is most concerned about
Explain the policy action that the Central Bank would take under each assumption, and note the potential trade-off associated with each policy action (100 words maximum for each scenario). Include an AD-AS diagram for each to illustrate the effects on the economy.]
(c) [Suppose, instead of the policy actions described in part (b), that there is no policy intervention to address the fallout of the shock described in part (a). In the absence of any policy intervention (monetary or fiscal), what type of free market adjustment would need to occur for the economy to eventually return to Y*? Include an AD-AS diagram to illustrate this adjustment process (50 words). (Hint: Start with the scenario you illustrated in your answer to part (a).]
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