Use the answer provided to answer the remaining questions Crads. Juppose Swit. erland is initiallynomy. Analyzepandemic in the AA-DD diagram. We refer to this equilibriumIConsiderA-DL uiagram wat full employment (Y = Ythe effects of the Covid1 19 pandemic hitspoint as C.Why did aggregate demand fall? List three reasons.For now, assume thataggregate demand fell due to a decrease in the consumption multiplier c < c, where c isthe previous level of the consumption multiplier. Imagine the government tries to stimulateaggregate demand through a tax cut (i.e., lower T). Is the increase in aggregate demandhigher with the pandemic consumption multiplier cº or the normal consumption multiplier? Do households save a larger or smaller fraction of their income with the consumptionmultiplier cC compared to a situation with a consumption multiplier cf?The Covid-19 pandemic did not only have effects on demand, but also on sup-ply. In particular, many countries are experiencing surges of inflation, whereas inflationin Switzerland remains relatively low. Consider the AA-DD model and start again fromfull employment. Analyze the effects from an increase in the foreign price level P*. Forsimplicity, assume that the domestic price level P remained constant. The economy is initially at full employment at Y*when the Covid 19 pandemic comes, thegovernment impose lockdown in the countrydue to which there is a fall in the AD in theeconomy as the people become very uncertainabout the future. So, the AD’ curve shifts to ADwhere the price level and output both falls. It isshown below:LRASSRASP'E'PAD'ADYfOutputIn the diagram, the economy was in equilibriumat Y' which is at natural level after Covid-19.When the Covid 19 hits the economy, theequilibrium shifts to E which below natural ratePrice level

Aggregate demand aggregate supply model depicts the equilibrium in economy which shows the aggregate…

m Crass. Juppose Swit. erland is initially nomy. Analyze the effects of the Covid pandemic in the AA-DD diagram. we refer to tis equilibrium EJConsider A-DL uiagram at full employment (Y = Y 19 pandemic hits point as C. Why did aggregate demand fall? List three reasons. For now, assume that aggregate demand fell due to a decrease in the consumption multiplier c < c, where cf is the previous level of the consumption multiplier. Imagine the government tries to stimulate aggregate demand through a tax cut (i.e., lower T). Is the increase in aggregate demand higher with the pandemic consumption multiplier c° or the normal consumption multiplier ? Do households save a larger or smaller fraction of their income with the consumption multiplier c compared to a situation with a consumption multiplier cf?

m Crass. Juppose Swit. erland is initially nomy. Analyze the effects of the Covid pandemic in the AA-DD diagram. we refer to tis equilibrium EJConsider A-DL uiagram at full employment (Y = Y 19 pandemic hits point as C. Why did aggregate demand fall? List three reasons. For now, assume that aggregate demand fell due to a decrease in the consumption multiplier c < c, where cf is the previous level of the consumption multiplier. Imagine the government tries to stimulate aggregate demand through a tax cut (i.e., lower T). Is the increase in aggregate demand higher with the pandemic consumption multiplier c° or the normal consumption multiplier ? Do households save a larger or smaller fraction of their income with the consumption multiplier c compared to a situation with a consumption multiplier cf?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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