Details:

Consider the current covid-19 situation and its negative impact on economic activity.

Section 1: COVID-19 Impact

Using the AD-AS model (short-run and long-run AS) and the Aggregate Expenditure (AE) model and assuming the Singapore economy was at the natural rate of output at the onset of the crisis:

Illustrate the impact of the crisis on the domestic economy using both the AD-AS model and the AE model. Ensure you clearly label all parts of the diagram, clearly demonstrating the original equilibrium and the COVID-19 outcome equilibrium.

Discuss your rationale for the outcome you have demonstrated in your diagrams, ie discuss which components of AD/AS/AE have been affected and why - the basis of the shifts you demonstrated in the diagrams.

Section 2: Model Assumptions and Resultant Outcomes

The 2 models you have used have different underlying assumptions.

Outline the major underlying difference(s) between the two models.

Briefly discuss and illustrate how thehow the difference(s) in the model assumptions impact the degreeof the potential impact on the economy. Use the AD-AS Model and provideONEdiagram to illustrate the potential difference in outcomes depending on the assumptions made. (Hint - consider the assumptions underlying the AE model - what SRAS curve reflects this?)

Section 3: Policy Recommendations

Based on the differences of the model:

Provide alternate policy recommendations for each model, the justification for the policy recommendations and any costs/benefits you perceive of these actions. Discuss whether self-correction is possible for either model - if so, what is the process. Discuss the costs and benefits of self-correction in this case relative to government intervention.