Question

Need a GRAPH for :

Covid 19 pandemic cyclical unemploymet

Labor market graph

Answer 1

Reduction in spending will create recessionary gap wherein economy will produce at less than potential at Long run aggregate supply as shown in the diagram below. Potential is Y1 but actual is Y2 and hence there is output gap, Y2-Y1. Unemployment will be more ue to less aggregate demand as many industries will reduce manpower.This creteas recessionary cycle and unemployment.

As more labor is available, supply shifts from S1 to S2. Wages will go down from w1 to w2.