we only consider short run and do not have to consider the long run aggregate supply curve. The recent fifth wave of the coronavirus has been hurting the Hong Kong economy badly, many businesses such as retail stores and restaurants are suffering due to the social-distancing measures. On the other hand, the production has been hindered, many workers can't go to work (e.g. some got sick, and the transportations in HK have been reduced) and thus firms have reduced their production.

(a) How does it affect the aggregate demand curve of Hong Kong?

(b) How does it affect the aggregate supply curve of Hong Kong?

(c) Show the above changes (in parts (a) and (b) on an AD-AS diagram. How do you expect the change in real output level in Hong Kong?

(d) Based on part (c), will the inflation rate in Hong Kong be higher or lower? Will it surely increase theoretically? What is your own prediction?