The Covid-19 pandemic and lockdown that followed have served as multiple shocks to the South African economy. The initial 5-week lockdown limited mobility of people and the availability of goods and services, leading to contractions in aggregate demand and supply. Policymakers have responded with expansionary fiscal and monetary policy. The government has implemented a R500bn support package and the Reserve Bank has reduced the repo rate and extended liquidity in the bond market. Apply both the AD-AS model as well as the IS-LM-BP model to explain the impact of the crisis and the policy reaction on the level of output, the interest rate and the price level in South Africa. Make use of the necessary graphs and please explain the entire chain reaction.

(for 25 marks)

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