Assume that before the Covid-19 pandemic the economy of Canada was in long-run equilibrium in the...
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Assume that before the Covid-19 pandemic the economy of Canada was in long-run equilibrium in the AD-AS model. As the effects of pandemic settled in, there were several effects on the economy. The next sections discuss some of these effects. A. How did your consumption of goods and services (your individual consumption or that of your family) change at the beginning of the pandemic? Give an example or two that you can share. (2 marks) B. How did your ability to earn income (individually or in your family) change at the beginning of the pandemic? Discuss briefly (but don't overshare) (2 marks) C. The health concerns and the economic restrictions associated with the pandemic resulted in many Canadian families reducing their consumption of goods and services. Which of the curves in the AD-AS model is affected by these changes and how? (2 marks) D. The public health measures introduced by authorities (temporary closures, mask mandates, reduced capacity) have affected producers' ability to produce goods and services. Which of the curves in the AD-AS model is affected by these changes and how? (2 marks) E. Draw an AD-AS model with the economy starting in the long-run equilibrium point A. Show the effect of the changes discussed in parts (C) and (D) on your diagram. Label the new short-run equilibrium in the economy as point B. (5 marks) F. At point B, how does the economy's output level, price level, inflation and unemployment level compare to point A? Discuss. (2 marks) G. If, at this point, the government and central bank did nothing to help the economy, how would the economy adjust to a new long run equilibrium? Which curve would shift and how? Show the new long-run equilibrium reached by the economy through this self-adjustment process on your previous AD-AS diagram and label it as point C. (3 marks) H. Discuss what would have happened to the output level, price level, inflation rate and unemployment rate as the economy adjusted from point B to point C. (2 marks) Instead of waiting for the economy to adjust by itself out of the pandemic disruptions, the government of Canada and the Bank of Canada did, in fact, interfere swiftly in the economy. In 2020, the government introduced different types of income transfers and other extraordinary measures to help Canadians who struggled or lost their ability to carn income. Bank of Canada lowered the bank rate to 0.5% in April 2020 and maintained it at this very low level until March 2022. I. In terms of the AD-AS model, what was the intention behind these changes in government and central bank measures? How are these policies called? (2 marks) J. Which curve(s) is (are) affected by this type of policies and how? (2 marks) K. Assume that the policies listed above are successful in shifting the relevant curve(s) until the economy returns to long-run equilibrium. Starting with the economy still at point B on your previous diagram, show the effect of these policies on your diagram (that is, shift the relevant curve(s) until the economy reaches a long-run equilibrium). Label the new long-run equilibrium as point D. (2 marks) L. Is point D the same as the long-run equilibrium point C found above? If not, what's is different between them? (2 marks) M. Critics of the government and central bank intervention blame them for the recent spike in inflation. Supporters of policy intervention claim that these policies were necessary to avoid a long and painful recession and possibly deflation. Which of these groups do you agree with and why? (2 marks) Assume that before the Covid-19 pandemic the economy of Canada was in long-run equilibrium in the AD-AS model. As the effects of pandemic settled in, there were several effects on the economy. The next sections discuss some of these effects. A. How did your consumption of goods and services (your individual consumption or that of your family) change at the beginning of the pandemic? Give an example or two that you can share. (2 marks) B. How did your ability to earn income (individually or in your family) change at the beginning of the pandemic? Discuss briefly (but don't overshare) (2 marks) C. The health concerns and the economic restrictions associated with the pandemic resulted in many Canadian families reducing their consumption of goods and services. Which of the curves in the AD-AS model is affected by these changes and how? (2 marks) D. The public health measures introduced by authorities (temporary closures, mask mandates, reduced capacity) have affected producers' ability to produce goods and services. Which of the curves in the AD-AS model is affected by these changes and how? (2 marks) E. Draw an AD-AS model with the economy starting in the long-run equilibrium point A. Show the effect of the changes discussed in parts (C) and (D) on your diagram. Label the new short-run equilibrium in the economy as point B. (5 marks) F. At point B, how does the economy's output level, price level, inflation and unemployment level compare to point A? Discuss. (2 marks) G. If, at this point, the government and central bank did nothing to help the economy, how would the economy adjust to a new long run equilibrium? Which curve would shift and how? Show the new long-run equilibrium reached by the economy through this self-adjustment process on your previous AD-AS diagram and label it as point C. (3 marks) H. Discuss what would have happened to the output level, price level, inflation rate and unemployment rate as the economy adjusted from point B to point C. (2 marks) Instead of waiting for the economy to adjust by itself out of the pandemic disruptions, the government of Canada and the Bank of Canada did, in fact, interfere swiftly in the economy. In 2020, the government introduced different types of income transfers and other extraordinary measures to help Canadians who struggled or lost their ability to carn income. Bank of Canada lowered the bank rate to 0.5% in April 2020 and maintained it at this very low level until March 2022. I. In terms of the AD-AS model, what was the intention behind these changes in government and central bank measures? How are these policies called? (2 marks) J. Which curve(s) is (are) affected by this type of policies and how? (2 marks) K. Assume that the policies listed above are successful in shifting the relevant curve(s) until the economy returns to long-run equilibrium. Starting with the economy still at point B on your previous diagram, show the effect of these policies on your diagram (that is, shift the relevant curve(s) until the economy reaches a long-run equilibrium). Label the new long-run equilibrium as point D. (2 marks) L. Is point D the same as the long-run equilibrium point C found above? If not, what's is different between them? (2 marks) M. Critics of the government and central bank intervention blame them for the recent spike in inflation. Supporters of policy intervention claim that these policies were necessary to avoid a long and painful recession and possibly deflation. Which of these groups do you agree with and why? (2 marks)
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A At the beginning of the pandemic my consumption of goods and services decreased due to the restrictions imposed in terms of movement and overall safety My family and I stopped going to restaurants s... View the full answer
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