Broad Questions

a.The Covid-19 can be considered as a big "shock" to the Canadian economy. Show how the economy will be impacted using the AS-AD model (with diagram). In your answer, you should:

mention what components of Aggregate Demand are expected to be impacted, and why

clearly demonstrate changes in the AS-AD diagram with proper labels

talk about the impact on Canadian GDP, prices and unemployment

b.According to the AS-AD model, how would the economy adjust itself "naturally" in the long run following the Covid-19. Show the adjustment process in the diagram.

c.What can be the challenge with the natural long-run adjustment process? What can be another approach to get the economy back to its potential GDP?

Short Questions

1.Your friend argues real GDP per capital is a poor measure of economic well-being. He says the statistic fails to consider factors such as pollution and leisure. Provide a counter argument that defends the use of real GDP per capital as a welfare measure

2.If the government wants to increase interest rates in the economy, what kind of open market operations should it follow? Describe the full process, along with the impacts on GDP (include graphs)

3.Use the model of aggregate demand and aggregate supply (long run and short run) to explain how each of the following would affect real GDP and the price level in the short run. Include graphs in your answers.

a.An reduction in tax rates for businesses and consumers

b.An increase in the capital stock of the country

c.An increase in the income of China which is a major purchaser of Canadian exports

4.The new Canadian federal budget for 2019 includes close to 20 billion dollars in funding for technology companies in Canada. Discuss how this funding can help contribute to economic growth in Canada.