Coronavirus pandemic and resultant shutdown measures to contain it have plunged the economies around the world including Singapore into severe contraction. Assuming Singaporean economy was in long run equilibrium in the aggregate demand and supply (AD-AS) model before the pandemic (and consequent shutdown) started, answer the questions below: a) Assuming the contraction in the Singaporean economy is mainly driven by demand side factors, Show the short-run effects of this using the AD-AS model. Carefully explain in words b) Now assume that the contraction in the Singaporean economy is mainly driven by supply side factors, Show the short-run effects of this using the AD-AS model. Carefully explain in words c) Which of the above mentioned two recessions scenarios, is more challenging for the policy makers to deal with (the government and the central bank)? and why?
Coronavirus pandemic and resultant shutdown measures to contain it have plunged the economies around the world including Singapore into severe contraction. Assuming Singaporean economy was in long run equilibrium in the aggregate demand and supply (AD-AS) model before the pandemic (and consequent shutdown) started, answer the questions below:
a) Assuming the contraction in the Singaporean economy is mainly driven by demand side factors, Show the short-run effects of this using the AD-AS model. Carefully explain in words
b) Now assume that the contraction in the Singaporean economy is mainly driven by supply side factors, Show the short-run effects of this using the AD-AS model. Carefully explain in words
c) Which of the above mentioned two recessions scenarios, is more challenging for the policy makers to deal with (the government and the central bank)? and why?
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