COVID-19's Impact on Aggregate Demand, Supply, and Equilibrium

This assignment analyzes the impact of the coronavirus on aggregate demand, using the New Keynesian model to illustrate how the pandemic acts as a demand shock. The analysis demonstrates the shift from long-run to short-run equilibrium, resulting in a recessionary gap. It explores the limitations of conventional fiscal and monetary policies in this context and discusses the need for government intervention through stimulus packages. The paper compares the current situation with the Great Recession, highlighting differences in economic conditions and potential stimulus strategies. The analysis also considers the long-run costs associated with stimulus packages and provides a framework for understanding the economic implications of the pandemic. The assignment references key economic concepts and utilizes aggregate demand, short-run aggregate supply, and long-run aggregate supply curves to explain the economic impacts. Furthermore, the assignment emphasizes the interrelation between supply and demand forces, the importance of addressing the immediate needs of individuals, and the potential for newly created automatic stabilizers.

The impact of coronavirus on aggregate demand
We take as our beginning stage a stripped-down form of the standard New Keynesian model
(Gali 2009). As in the Keynesian convention, employment and output are controlled by
aggregate demand. Thus, aggregate demand relies emphatically upon efficiency development.
This impact offers to ascend to a positive connection between efficiency development (g) and
employment (l), delineated by the AD bend in Figure 1.
Short-run equilibrium Coronavirus
Long-run equilibrium - Coronavirus
Corona virus has acted a demand shock

Impermanent negative supply shocks, for example, those brought about by a pandemic, lessen
output and employment. As desperate as they might be, supply stun downturns are somewhat a
productive reaction, since output and employment ought to surely fall.
The viewpoint we offer here is unique and dependent on the idea that supply and demand powers
are interlaced: demand is endogenous and influenced by the supply stun and different highlights
of the economy. Our examination reveals highlights of the economy that issue and the
instruments by which powers following up on the supply side wind up influencing the demand
side also. The fundamental instinct is basic: when labourers lose their salary, because of the stun,
they diminish their spending, causing a withdrawal in demand. In any case, the inquiry is
whether this system is sufficiently able to cause a general deficit in demand. (Jordà et al.)
The economy now in a recessionary gap or an inflationary gap
Conventional recessions can be handled by free fiscal and monetary policy. These won't work
when dread drives the log jam. In numerous nations, financing costs are as of now near zero, so
national banks have lost their capacity to stimulate through huge rate cuts. Soma banks could cut
loan fees by as much as 2%, however, will that restore loaning when recession and dread are
slaughtering organizations? The doomed money related framework will dull all fiscal and
monetary activities. This is fundamentally a recessionary gap and can't act naturally amended. It
needs the assistance of the government and the budgetary organizations.
The proposed stimulus package
The activity of any transient improvement must be to assist genuine people with genuine issues:
defending wellbeing and enduring the financial crunch. Bailouts to supported enterprises are a
weak and insufficient approach to accomplish these objectives. The best thoughts would most
likely be to send unhindered assets to state and nearby governments to help settle the expense of
coronavirus, toss everything conceivable at expanding zero-carbon power age, and briefly
decrease manager side finance assessments to dishearten organizations from laying individuals
off. (Jordà et al.) The right arrangement is to consent to fiscal upgrade however expect it to
appear as making newly programmed stabilizers.
This isn't simply unrealistic reasoning concerning a pandemic. In 2009, during the Great
Recession, President Barack Obama marked the American Recovery and Reinvestment Act, a
generally $800 billion improvement bundle. Be that as it may, this time because of the high
swelling and the financial demand the infusion will be higher than that. An accurate sum can't be
resolved. (Makridis, and Hartley)
References

Jordà, Òscar et al. "Longer-Run Economic Consequences Of Pandemics". Federal Reserve Bank
Of San Francisco, Working Paper Series, 2020, pp. 01-16. Federal Reserve Bank Of San
Francisco, doi:10.24148/wp2020-09.
Makridis, Christos, and Jonathan Hartley. "The Cost Of Covid-19: A Rough Estimate Of The
2020 US GDP Impact". SSRN Electronic Journal, 2020. Elsevier BV, doi:10.2139/ssrn.3570731.