Macroeconomics: Covid-19 Scenario Analysis
ECON
The answer for each question should be between around 300 words completed in a 12-point font and double-spaced.
Scenario
Since the beginning of 2020, countries around the world have been grappling with the effects of COVID-19, a highly infectious disease caused by a newly discovered coronavirus, for which there is no treatment and no vaccine. The COVID-19 pandemic has prompted mass social distancing measures, with widespread economic impacts. As the global oil demand crumbles and OPEC’s oil price war continues, oil-producing and oil-exporting countries also face a second economic challenge of low oil prices.
Country X is facing the economic impacts of both COVID-19 and low oil prices for its oil exports. Use the relevant economic theories and concepts in ECON to answer the questions below.
Questions
- How is COVID-19 expected to affect the aggregate demand of Country X? Assuming that other factors remain constant, what can be expected to happen to the country’s equilibrium price level and income? (20 marks)
- How is the fall in global oil demand expected to affect the aggregate demand of Country X? Assuming that other factors remain constant, what can be expected to happen to the country’s equilibrium price level and income? (20 marks)
- How is COVID-19 expected to affect the aggregate supply of Country X? Assuming that other factors remain constant, what can be expected to happen to the country’s equilibrium price level and income? (20 marks)
- Use the AD-AS diagram (model) to show the net effects of COVID-19 on equilibrium price level and income in Country X. (20 marks)
- What fiscal policy would you recommend to help minimize the economic effects of COVID-19? Use the AD-AS diagram to illustrate how your policy recommendations could be expected to affect the net effect of COVID-19 as you outlined for Question 4 above. (20 marks )