Question

1. Use macroeconomic models to describe how the pandemic has led to negative GDP growth because of the COVID-19 pandemic.

2. What is a set of policies that will be most effective at pulling the economy out of this recession as quickly as possible?

3. How will the policies affect macro models in bringing about movement towards full employment GDP?

Answer 1

1)

The COVID-19 has led to the negative growth rate. The Pandemic has reduced the aggregate demand and aggregate supply dramatically. The demand has been key driver of growth for economy. Thus, when aggregate demand fell, the automatically, the output and employments also affected negatively.

Thus, fall in the output eventually led to the fall in the growth rate of economy,

2)

The expansionary monetary and fiscal policies would be right measures to pull economy out of the recession. expansionary monetary policy increases the aggregate demand in economy. Similarly the fiscal policy drives up the aggregate demand. The fiscal policy is more effective in raising the level of economic activities.

3)

Underemployment or operating below the full employment is caused by the fall in the aggregate demand. The monetary and fiscal policies would help to push upward the aggregate demand in economy.