Question

Question 1 (50 points) (Worth 50 points) Consider the recent episode of economic turmoil brought on by Covid-19. Use a combination of these models to answer the following questions: IS/LM, AD/AS, Keynesian Cross, and the Money Market. a). Consider the month of April 2020 and effect of widespread social lock downs (assume for part a the government and the Fed do nothing). Using the models above, explain in as much detail as possible (specify models, which curves shift, how equilibrium values change, etc.), what is likely to happen to output, unemployment, consumption, investment, interest rates, and the price level in BOTH the short run and long run. Several models are needed to explain the movements in these variables! b). Now consider the policy responses to the Covid-19 crisis. After the virus took hold, the Federal Government enacted a spending bill and the Fed made monetary policy stimulative. Using the models above, explain in as much detail as possible (specify models, which curves shift, how equilibrium values change, etc.), what policymakers are hoping will happen to output, unemployment, consumption, investment, interest rates, and the price level in BOTH the short run and long run. Several models are needed to explain the movements in these variables!

Answer 1