The past year witnessed significant challenges for health and economic policy. The global pandemic required Australian authorities to shut down certain industries to protect public health. With close to 1 million jobs lost in April and May 2020, this shutdown in economic activity led to a dramatic fall in consumers' and firms' confidence to spend and invest.

Use a Keynesian model of the macroeconomy to describe what effect the fall in confidence had upon output in the Australian economy. Be specific and describe what components of expenditure are affected and why. Discuss the adjustment process associated with moving from an initial equilibrium (before the onset of the pandemic) to a new equilibrium (after the significant job losses). In particular, discuss the mechanism that leads to a change in output and includes a relevant diagram. Explain what the multiplier is and the role it has in explaining the fall in output. What policy actions can restore aggregate demand to its initial level?