oronavirus crisis is an unprecedented shock for the European economy: its effect on economic activity is clearly negative, and the doubts revolve around the magnitude and duration of the impact. In contrast, its effect on inflation raises more questions. There are downward pressures, such as the collapse in consumption due to the lockdown and the fall in the price of oil, but also upward pressures, such as the closure of factories and the general reduction in production. In addition, we must distinguish between the short-term effectsThe rise in inflation in unprocessed food (particularly fruit and vegetables) has been abnormally high, indicating a decline in production and a bottleneck as demand remains more stable, since the lockdown did not alter consumers’ basic needs. Prices may also have been affected by a possible increase in demand as consumers stockpiled. The drop in energy prices, meanwhile, reflects a collapse in demand for energy sources as a result of the shutdown of activity in many sectors, such as transportation Briefly explain the effects of COVID-19 on the world economy Assuming a fall in the price of oil, use the AD-AS framework to explain the impact on prices, employment and income Is inflation good or bad?
oronavirus crisis is an unprecedented shock for the European economy: its effect on economic activity is clearly negative, and the doubts revolve around the magnitude and duration of the impact. In contrast, its effect on inflation raises more questions. There are downward pressures, such as the collapse in consumption due to the lockdown and the fall in the price of oil, but also upward pressures, such as the closure of factories and the general reduction in production. In addition, we must distinguish between the short-term effectsThe rise in inflation in unprocessed food (particularly fruit and vegetables) has been abnormally high, indicating a decline in production and a bottleneck as demand remains more stable, since the lockdown did not alter consumers’ basic needs. Prices may also have been affected by a possible increase in demand as consumers stockpiled. The drop in energy prices, meanwhile, reflects a collapse in demand for energy sources as a result of the shutdown of activity in many sectors, such as transportation
Briefly explain the effects of COVID-19 on the world economy
Assuming a fall in the price of oil, use the AD-AS framework to explain the impact on prices, employment and income
Is inflation good or bad?
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
