Question

in terms of stagflation and covid 19 What should the government do to, if anything improve the current economic situation?

Answer 1

Stagflation is a situation in which the rate of inflation is very high coupled with the high unemployment and lower GDP. In order to bring the economy back to to its long run equilibrium the rate of inflation should be reduced and the real GDP should be increased. Demand-side policies are not effective because they will increase the aggregate demand and this will increase the rate of inflation further. Supply side policies are more effective and this includes tax benefits to workers, companies as well as investment in education, infrastructure, health that raises the productivity of workers. These policies are aimed at shifting the short run aggregate supply curve / long run aggregate supply curve to the right and reduce inflation while raise GDP