2. What has been the impact of the COVID-19 pandemic on the economy?
[Identify two specific ways that the COVID-19 pandemic shocked the economy at some point during the COVID-19 pandemic, applying your AD-AS model. The shock could have occurred at any point of the pandemic.]
[When you think of your two shocks, you should think in terms of a shock that is related to either Aggregate Demand (AD) or Short-Run Aggregate Supply (SR-AS). You should identify one shock that relates to Aggregate Demand (that is, a demand-side shock), and one shock that relates to Short-Run Aggregate Supply (that is, a supply-side shock). The shock can be either positive or negative. Each shock be able to be represented by a shift in the AD or SR-AS function on an AD-AS diagram. If the shock relates to AD, you must identify which component of AD was affected.]
[For each of the two shocks that you have identified, explain what caused it to occur during the pandemic. Explain to your client in simple language how each shock caused a shift in AD or SR-AS, and how this consequently affected economic output (Y) and price pevel (P) in this country’s economy. If the shock is affecting the AD function, remember to specifically mention which component of AD was being affected.]
[Illustrate each of these two shocks using an AD-AS diagram. You should create two separate diagrams for each of your two shocks. Include all essential elements of your diagram, including marking the initial and new macroeconomic equilibrium points, and including arrows to illustrate what has changed on your diagram. In your discussion of each of these shocks, you should clearly refer to your diagram when explaining what happened to AD or SR-AS, Output and Price Level.]
[For the purpose of this analysis, you can assume the economy begins at Potential Output (Y*) and you only need to focus on short-run effects. Remember that each diagram should illustrate the effect of one shock only and assume no other changes are occurring (that is, you are “holding everything else constant”).
[Tip: Remember to just focus on the effect of the two specific shocks that you have chosen, rather than attempt to explain everything that has happened in the economy during the pandemic!]
[5-7 sentences for each of the two shocks in addition to diagrams]
2.1 Example of demand-side shock
[Explanation and diagram]
2.2 Example of supply-side shock
[Explanation and diagram]
4. Longer-term outlook
4.1 Source for long-term economic prosperity
[Your client wants to be advised on this country’s economy’s long-term growth prospects for the future. Using your economic knowledge on long-term growth, provide your brief insights into the ingredients that an economy needs for achieving ongoing improvements in its productive capacity and economic prosperity over the long-run. Share you knowledge with your client on what are the most important ingredients for building a country’s potential output in the long-run. Present a theoretical diagram to illustrate your explanation of long-term growth. [150-200 words]
4.2 Effects of the pandemic on the economy’s productive capacity
[Drawing on your economic knowledge of the drivers of long-run growth, identify one way that the pandemic has potentially damaged the economy’s productive capacity and one way that the pandemic has potentially resulted in changes that could improve a country’s productive capacity. Describe how these effects would be illustrated with reference to the theoretical diagram that you have presented in the previous point.] [150-200 words]
4.3 Predicted effects of climate change on economic prosperity
[As part of your consultancy advice to your client, provide some insight on the predicted risks of climate change and the importance of natural resource sustainability for the economy. Provide your assessment of the implications of climate change forecasts for the productive capacity of the economy in the future. [150-200 words]
4.4 Broader measures of economic prosperity and wellbeing
[Lastly, advise your client on some other metrics of wellbeing that we need to pay attention to when assessing a country’s overall improvement in quality of life over the long-term. Explain to your client why it is important to consider additional indicators of wellbeing in addition to the conventional economic indicators. Choose two alternative measures of economic prosperity and wellbeing that are used internationally, and provide a brief explanation of what they measure. Source data on these two measures for your country and note how your country compares to other countries elsewhere in the world according to these measures.] [150-250 words]
