Question
Since March 2020, the UK government has introduced a series of policies to retain jobs (Coronavirus Jobs Retention Scheme), support public services, provide government loans,
Since March 2020, the UK government has introduced a series of policies to retain jobs (Coronavirus Jobs Retention Scheme), support public services, provide government loans, tax deferrals, and general and sector-specific grants to businesses. It has spent over 280 billion to do so. In addition to that, the Bank of England has reduced its bank interest rate from 0.75% to 0.1%. (a) Using the AD (multiplier) model, explain the effect of this stimulus package on output and unemployment. Briefly explain which components of total output are likely to be affected by each of these policies. (15 marks) (b) Using the labour market and the Phillips curve diagrams show the effect of these policies on inflation.
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