The onset of COVID-19 has seen aggregate demand in Columbia decrease dramatically. As a result, unemployment in the country has increased. Draw a model of the labour market. Assume that before the onset of COVID-19 the labour market in Columbia was in equilibrium. On your model show what effect the increase in unemployment in the country would have on the real wage in the short term before any adjustments take place. Label both axes, curves, and important points on your model.

If an economy has low aggregate demand with high unemployment, then an automatic adjustment back to equilibrium could occur through a process of wage and price cuts in the labour market. Imagine that you are a worker in Columbia who has recently lost their job because of COVID-19 and you see many other workers in your country have also lost their jobs. How might this affect any adjustment back to equilibrium in the labour market?