QUESTION 4

"US unemployment has surged to 14.7 per cent, its highest level since the second world war, as the coronavirus pandemic led 20.5m Americans to lose their jobs in April in a painful blow to the world's largest economy. The Trump administration and US lawmakers have already passed about $3tn in fiscal stimulus measures since the coronavirus pandemic began in early March but the impact of many of those policies, including loans to small businesses and expanded jobless benefits, will start to fade in June and July...".

a)Draw a graph of the Keynesian cross to show the effect of this fiscal stimulus on the model. Explain brieflywhat happens after the stimulus packageand clearly label your graph (all intersections and critical points).

b)Use the AD/AS model to depict the impact of the stimulus payment in the short run and give an explanation. Briefly explain the effect of the stimulus payment on a household's consumption, the price level, and the real GDP.