Using the AD/SRAS/LRAS model (with the sticky price version of the SRAS model), draw a diagram to graph the impact of the coronavirus (COVID-19) shock on the US economy. Assume starting at an initial long run equilibrium. Use the diagram to determine the following questions:

Long Run Impacts: Suppose that policymakers did not address the impact of the shock. What would happen in the transition to the long run equilibrium? That is, in the absence of policy intervention (by either the fiscal or monetary authorities), as we transition from the short run equilibrium to the long run equilibrium, what does the model predict would happen to:

1. The SRAS (Decreases/Increases/No Change/Uncertain
2. The LRAS (Decreases/Increases/No Change/Uncertain
3. Inflation (Decreases/Increases/No Change/Uncertain
4. Output (Decreases/Increases/No Change/Uncertain

Answer rating: 100% (QA)

To analyze the impact of the COVID19 shock on the US economy using the ADSRASLRAS model we need to consider the short run aggregate supply SRAS long r... View the full answer