Question

Canvas + → X CIO Question 101 15 pts The Coronavirus had a significant impact on the US economy. It has restricted our ability to go out to restaurants, bars, and sporting events. Many small businesses have a negative outlook on the economy and others have closed their doors permanently. In response to the virus, the federal reserve bank has reduced the target range of the federal funds rate to 0%-0.25%. The government also passed a $2.2 Trillion stimulus bill. Using the Aggregate Demand-Aggregate Supply framework, explain the impact of the Coronavirus pandemic on the US economy. As a result of the coronavirus, consumption and investment across the economy have (Select] This has caused the Select curve to shift (Select] . This places the economy [Select) where the price level Select) and the economy is [Select) In response to this situation, the fed (Select) the cost of borrowing by targeting a lower Select] This is called a(n) [Select monetary policy. The aim of the policy is to [Select .by Select) consumption and Select] In the economy. This policy helps to increase Select and Select] as the economy returns to normal.

Answer 1

The emergence of the coronavirus pandemic has lowered the levels of consumption and investment in the economy as people are unable to enjoy restaurant and travel services( that is impacting consumption) and a negative outlook on the businesses has reduced the amount of planned investment they are willing to do. As a consequence, the demand for final goods has dropped sharply causing a leftward shift in the AD curve. This has resulted in lower aggregate prices and lower income level( as per AD-AS model). A decrease in income level, that is negative economic growth, has brought a scenario of business recession in the economy.

In response, the monetary authorit(that is Fed) has enforced an expansionary monetary policy by lowering the rate of borrowing of funds for banks via setting a lower target of federal funds rate. The main motive of this policy is to boost aggregate demand for goods by increasing both consumption and investment. It helps the economy to increase in the price level and income level as it returns to its normal state.