Answer to Question #178853 in Macroeconomics for Jill

Question

Assume the short run. The Irish economy was hit with COVID 19 in February 2020. A number of rolling lockdowns occurred over 2020 and 2021.
a. Explain if this event shifts the short run aggregate supply curve, the aggregate demand curve, both or neither in the Irish economy. Illustrate your answer with a diagram.
b. Illustrate graphically and explain the theory of the fiscal and monetary policy response to this event in an Irish context.

750 words please help me

Answer 1

Lockdowns caused negative shocks on both aggregate demand Curve and aggregate supply curve of the Irish economy. This means a leftward shift of both curves. This is because lockdowns prevented people from going to work and thus negatively affecting supply. Also, the limited movements reduced consumption as people could not access areas such as restaurants. Due to the leftward shifts, the equilibrium level of real GDP is substantially below potential GDP, as occurred at the equilibrium point shown above.

(b) The Irish government has incorporated the following monetary policies in response to Covid-19. 1.Additional longer-term refinancing operations (LTROs);

2) More favourable terms on the targeted longer-term refinancing 

operations (TLTROs);

3) Additional net asset purchases under the Asset Purchase 

Programme

The Irish government has also shown continued focus on supporting the productive capacity of the economy and avoiding scarring effects such as long-term unemployment. Any such action by the Governmentis likely to be costly in the near-term but will benefit the fiscal position over the medium term if it is effective in reducing the degree of damage to the economy's productive capacity.