Question

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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 Fallen This has caused the AD curve to shift Right This places the economy above potential GDP 7 . where the price leve is likely lower and the economy is in an expansion In response to this situation, the fed did not change the cost of borrowing by targeting a lower growth rate 7 This is called a(n) contractionary monetary policy. The aim of the policy is to stimulate aggregate demand .by decreasing consumption and Investment in the economy. This policy helps to increase Real GDP and Deflation as the economy returns to normal.

Answer 1

As a result of the coronavirus, consumption and investment across the economy have fallen. This has caused the AD curve to shift left. This places the economy below potential GDP, where the price level is likely lower and the economy is in contraction.

In response to this situation, the Fed changed the cost of borrowing by targeting a lower federal funds rate. This is called an expansionary monetary policy. The aim of the policy is to stimulate aggregate demand, by increasing consumption and investment in the economy. This policy helps to increase real GDP and inflation as the economy returns to normal.