Macroecons Question : (300 words, use graphs if necessary)

The initiatives of Singapore's Budget 2021, aims to provide critical support to all sectors in the economy to emerge stronger from the pandemic. The emphasis is also moving towards job creation and rejuvenating the Singapore economy. Discuss the impact of these government initiatives on Singapore's Aggregate Demand and Aggregate Supply.

Lesson covers:

Aggregate demand (AD)

AD measures the demand for all goods and services at different price levels and so it shows the relationship between the general price leveland real output / GDP.

Short-run aggregate supply (SRAS)

The SRAS curve is upward sloping, i.e. the higher the level of prices, the more producers will be prepared to produce. This is because higher output will involve higher marginal costs. If firms face rising marginal costs, they will need to receive higher prices to encourage them to produce more.

In the short run, the prices and productivity of all factor inputs e.g. wage rates and the state of technology are held constant.

Long-run aggregate supply curve (LRAS)

The LRAS curvedescribes the economy's supply schedule in the long-run. Thelong-runis defined as the period when input prices have completely adjusted to changes in the price level of final goods.

Long-run Macroeconomic Equilibrium

The intersection of the short-run aggregate supply curve, the long-run aggregate supply curve, and the aggregate demand curve gives the equilibrium price level and the equilibrium level of output. This is the starting point for all problems dealing with the AS-AD model.

Long run Short run aggregate aggregate supply supply Price level Aggregate demand Output or Income