Macroeconomics 1
What has been the impact of the COVID-19 pandemic on the economy?
Identify two specific ways that the COVID-19 pandemic shocked the economy at some point during the COVID-19 pandemic, applying your AD-AS model. The shock could have occurred at any point of the pandemic.
For each of the two shocks that you have identified, explain what caused it to occur during the pandemic. Explain to your client in simple language how each shock caused a shift in AD or SR-AS, and how this consequently affected economic output (Y) and price pevel (P) in this country’s economy.
Illustrate each of these two shocks using an AD-AS diagram. You should create two separate diagrams for each of your two shocks. Include all essential elements of your diagram, including marking the initial and new macroeconomic equilibrium points, and including arrows to illustrate what has changed on your diagram.
For the purpose of this analysis, you can assume the economy begins at Potential Output (Y*) and you only need to focus on short-run effects
2.1 Example of demand-side shock
2.2 Example of supply-side shock
Your client wants to be advised on this country’s economy’s long-term growth prospects for the future. Using your economic knowledge on long-term growth, provide your brief insights into the ingredients that an economy needs for achieving ongoing improvements in its productive capacity and economic prosperity over the long-run.
Share you knowledge with your client on what are the most important ingredients for building a country’s potential output in the long-run. Present a theoretical diagram to illustrate your explanation of long-term growth. [150-200 words]
In the advice include the following:
4.2 Effects of the pandemic on the economy’s productive capacity
4.3 Predicted effects of climate change on economic prosperity
4.4 Broader measures of economic prosperity and wellbeing
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