Suppose that the coronavirus pandemic (COVID 19) in 2020 has resulted in a leftward shift of the aggregate demand curve (it has also shifted the short-run aggregate supply to the left, but let’s ignore this effect here for simplification). A. Use the aggregate-demand/aggregate-supply model to show the effects on output and the price level/inflation in both the short run and long run (assume that the short-run aggregate supply curve is upward sloping). B. Show the adjustment process of the economy from the short run to the long run. C. What is the effect on unemployment in short run and long run? D. Can policymakers use monetary policy (and/or fiscal policy) to accommodate this shock? Describe what happens to the economy in response to this policy action.
Suppose that the coronavirus pandemic (COVID 19) in 2020 has resulted in a leftward shift of
the aggregate demand curve (it has also shifted the short-run
let’s ignore this effect here for simplification).
A. Use the aggregate-demand/aggregate-supply model to show the effects on output and the
supply curve
B. Show the adjustment process of the economy from the short run to the long run.
C. What is the effect on
D. Can policymakers use
Describe what happens to the economy in response to this policy action.
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