1. The Covid-19 can be considered as a big "shock" to the Canadian economy. Show how the economy will be impacted using the AS-AD model (with diagram). In your answer, you should:

• mention what components of Aggregate Demand are expected to be impacted, and why
• clearly demonstrate changes in the AS-AD diagram with proper labels (graph the Short run)
• talk about the impact on Canadian GDP, prices and unemployment

1. According to the AS-AD model, how would the economy adjust itself "naturally" in the long run following the Covid-19. Show the adjustment process in the diagram.

Question 2 : (4 marks)

1.Use the model of aggregate demand and aggregate supply to explain how each of the following would affect real GDP and the price level. Include graphs in your answers.

2.

a.An increase in tax rates for businesses and consumers(Short run)

b.A decrease in the capital stock of the country (Long run)

c.An increase in the income of China which is a major purchaser of Canadian exports (short run)

d.An investment of the Government in a new hospital

Question 3 : (4 marks)

3.The government of country Alpha has made day-care free for the children of the country, which has contributed to increasing the participation of women in the labour force of the country. Using the lessons from the course, discuss how such a policy can impact economic growth in the country. (graph the job market, the production function and the AS in the long run).

Question 4 : (4 marks)

Based on the following table answer parts 1 to 3.

Country

Current real per capita income

Current growth rate

Population growth

Country 1

20,000

1%

1%

Country 2

15,000

2%

3%

Country 3

7,000

6%

5%

1.Which country is the richest?

2.Calculate the number of years to double for each country and compare Country 1 and Country 2.

3.Calculate the growth rate per capita for each country and comment about the changes in their standard of living

Question 5 : (3 marks)

The CPI and the GDP deflator are 2 measures of the inflation rate, compare between these 2 measures and explain their differences.