After you have studied Economics in the News on pp. 790–791, answer the following questions.

a. What was the scale of federal government expenditure on Covid relief programs?

b. How did the Covid pandemic change aggregate demand and aggregate supply? Draw a graph to illustrate your answer.

c. How did the fiscal policy response to Covid change aggregate demand and aggregate supply?

Draw a graph to illustrate your answer.

d. As the economy recovered from the Covid recession in 2021, what happened to aggregate demand and aggregate supply, and how can we tell? Draw a graph to illustrate your answer.

Transcribed Image Text:

ECONOMIC ANALYSIS During the Covid crisis that started in March 2020, the federal government sent three rounds of checks to indi- vidual Americans, provided unemployment assistance, and helped families who care for children and those un- able to pay rent or utilities. The federal government also gave tax credits and other help to small and large businesses, with special help to the transportation sectors. Total federal government expenditure on Covid programs was $3.18 trillion, which was around 15 percent of GDP. How did the Covid pandemic change real GDP and the price level? And what was the effect of the federal Covid relief programs? The table shows real GDP and the price level before Price level (GDP daflator, 2012= 100) 122 120 118 116 114 113 112 110 0 I 14.0 16.0 Covid pandemic decreased AD, SAS, and real GDP AD SAS Figure 1 In 2020 Without Fiscal Stimulus SASO ADO 18.0 19.2 22.0 Real GDP (trillions of 2012 dollars)