Answer to Question #193212 in Macroeconomics for Tsholofelo Phefo

Question

The Covid19 crisis and lockdown has been a supply response, the government Use the ADAS model, in conjunction with the IS of the shock and policy response.offered a R500bn stimulus package side shock to the South African economy. In to help cushion the blow.LMBP, to explain the supply and demand dynamics Where will equilibrium income and prices settle? Draw the graphs and explain the complete chain reaction. Total mark out of 30 2

Answer 1

The lockout caused by the Covid-19 emergency has become a supply side shock for economy, so the government has proposed a R500 billion spending plan to assist the region. To prevent complications, the initial points in the figure below are assumed to be AD, AS, and AS2. Whenever there is a supply-side shock, After policy interference, AS will rise to AS2 and then fall back to its original role.

As a result, the original state in the AD-AS model is A, which is the same as E in the IS-LM-BP model because here the shock is O because the points have been modified since the supply has been influenced because the supply is moved to AS2. In addition, the price shift from P2-P1 caused a change in point B. Income/output also falls from Y1 to Y2.

The IS-LM-BP curve was also influenced as the original equilibrium point E, and after the supply changed, the IS curve shifted to the left at the current equilibrium point F.

Now, the government offers a 500 billion stimulus package to help the economy. In that case, the market will bring the AS curve back to its original location, and then prices, interest rates, and wages will be restored to their original levels.

To prevent complicating the diagram, we will presume that the reconstruction is equal to the loss number, despite the fact that it is less than the initial price.