Goldman Sachs, a leading investment bank based in the US, made headlines in March, 2023 with their report on Artificial Intelligence (AI).

In the report, they predict that 300 million jobs worldwide will either be significantly affected or completely replaced by AI.

Should this prediction materialise, the global economy is set to undergo sweeping, fundamental changes.

Required:

1) Consider the shock above (i.e., AI taking over the workplace), explain how Aggregate Demand (AD), Short-run Aggregate Supply (SRAS) and Long-run Aggregate Supply (LRAS) will be affected (1 mark).

2) Draw an appropriate AD - AS graph to illustrate the impact of this shock. Assume the world economy is originally at the long-run equilibrium.(2 marks)

(Note: Please draw your graph on the blank A4 paper handed to you in class. Make sure to provide your name & student ID).

3) Explain clearly how the key macroeconomic variables (i.e., average price level, inflation rate, Real GDP and unemployment rate) will be affected by this shock (1 mark).

4) What should economic policy makers do with the people who are made redundant as their jobs get taken over by AI? In what way can the government support these people?(1 mark)