Question

What will happen to the AS model during Covid-19? With reference to unemployment, inflation, interest rate and economic growth.

Answer 1

Answer - The AS model consist of two elements , Savings and Investment. In the period of Covid 19 , all the businesses have been shut down due to the worlwide lockdown. People are not going to jobs and sources of earning have almost finished. In such condition , the savings in the economy have declined. People do not have enough money to invest. There is deficiency of demand in the economy. Thus due to the decrease in the savings and investment , the level of output in the economy has declined. Due to reduced demand and supply , the inflation in the economy has declined. The interest rates will rise as a result and the economic growth will decrease until the stimulus package is implemented.