Question 3

Using the AS/AD model, discuss the likely short-run and long-run impacts of the

following events with proper diagram(s), assuming that the government takes no

further action:

b) A sudden health crisis (such as the coronavirus pandemic in the first half of 2020)

that lowers workers' income (starting from the full-employment level).

a) An income tax cut by the government to support the economy (starting from the

full-employment level).