Due to COVID-19, an economy that is initially at full employment faces a substantial decrease in consumption and investment. With this in mind, answer the following questions. Part (a) Discuss, with the aid of aggregate output market and money market diagrams, the short-term effect on output, unemployment, the general price level and interest rate.
Due to COVID-19, an economy that is initially at full employment faces a substantial decrease in consumption and investment. With this in mind, answer the following questions. Part (a) Discuss, with the aid of aggregate output market and money market diagrams, the short-term effect on output, unemployment, the general price level and interest rate.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Answer part a only
Transcribed Image Text:Due to COVID-19, an economy that is initially at full employment faces
a substantial decrease in consumption and investment. With this in mind,
answer the following questions.
Part (a)
Discuss, with the aid of aggregate output market and money market
diagrams, the short-term effect on output, unemployment, the general
price level and interest rate.
Part (b)
Discuss, with the aid of an aggregate output market diagram, what kind
of monetary policy can be adopted to restore the economy to the full
employment equilibrium.
Part (c)
Suppose the problems discussed in part (a) rely on the self-adjustment
mechanism instead of the discretionary policy proposed in part (b).
Examine the possible impacts of minimum wage on the self-adjustment
mechanism.
6 (Ctrl)
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