Crads. Juppose Swit. erland is initially nomy. Analyze pandemic in the AA-DD diagram. We refer to this equilibrium IConsider A-DL uiagram w at full employment (Y = Y the effects of the Covid 1 19...

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Extracted text: Crads. Juppose Swit. erland is initially nomy. Analyze pandemic in the AA-DD diagram. We refer to this equilibrium IConsider A-DL uiagram w at full employment (Y = Y the effects of the Covid 1 19 pandemic hits point as C. Why did aggregate demand fall? List three reasons. For now, assume that aggregate demand fell due to a decrease in the consumption multiplier c < c,="" where="" c="" is="" the="" previous="" level="" of="" the="" consumption="" multiplier.="" imagine="" the="" government="" tries="" to="" stimulate="" aggregate="" demand="" through="" a="" tax="" cut="" (i.e.,="" lower="" t).="" is="" the="" increase="" in="" aggregate="" demand="" higher="" with="" the="" pandemic="" consumption="" multiplier="" cº="" or="" the="" normal="" consumption="" multiplier="" do="" households="" save="" a="" larger="" or="" smaller="" fraction="" of="" their="" income="" with="" the="" consumption="" multiplier="" cc="" compared="" to="" a="" situation="" with="" a="" consumption="" multiplier="" cf?="" the="" covid-19="" pandemic="" did="" not="" only="" have="" effects="" on="" demand,="" but="" also="" on="" sup-="" ply.="" in="" particular,="" many="" countries="" are="" experiencing="" surges="" of="" inflation,="" whereas="" inflation="" in="" switzerland="" remains="" relatively="" low.="" consider="" the="" aa-dd="" model="" and="" start="" again="" from="" full="" employment.="" analyze="" the="" effects="" from="" an="" increase="" in="" the="" foreign="" price="" level="" p*.="" for="" simplicity,="" assume="" that="" the="" domestic="" price="" level="" p="" remained="">


Extracted text: The economy is initially at full employment at Y* when the Covid 19 pandemic comes, the government impose lockdown in the country due to which there is a fall in the AD in the economy as the people become very uncertain about the future. So, the AD’ curve shifts to AD where the price level and output both falls. It is shown below: LRAS SRAS P' E' P AD' AD Yf Output In the diagram, the economy was in equilibrium at Y' which is at natural level after Covid-19. When the Covid 19 hits the economy, the equilibrium shifts to E which below natural rate Price level