Essay: Navigating Economic Turbulence - COVID-19's Impact and Policy Responses

Details:

Consider the current covid-19 situation and its negative impact on economic activity.

Section 1: COVID-19 Impact [300 word maximum]

Using the AD-AS model (short-run and long-run AS) and the Aggregate Expenditure (AE) model and assuming the Singapore economy was at the natural rate of output at the onset of the crisis:

· Illustrate the impact of the crisis on the domestic economy using both the AD-AS model and the AE model. Ensure you clearly label all parts of the diagram, clearly demonstrating the original equilibrium and the COVID-19 outcome equilibrium.

· Discuss your rationale for the outcome you have demonstrated in your diagrams, ie discuss which components of AD/AS/AE have been affected and why - the basis of the shifts you demonstrated in the diagrams.

Section 2: Model Assumptions and Resultant Outcomes [200 word maximum]

The 2 models you have used have different underlying assumptions.

· Outline the major underlying difference(s) between the two models.

· Briefly discuss and illustrate how the how the difference(s) in the model assumptions impact the degree of the potential impact on the economy. Use the AD-AS Model and provide ONE diagram to illustrate the potential difference in outcomes depending on the assumptions made. (Hint - consider the assumptions underlying the AE model - what SRAS curve reflects this?)

Section 3: Policy Recommendations [500 word maximum]

Based on the differences of the model:

· Provide alternate policy recommendations for each model, the justification for the policy recommendations and any costs/benefits you perceive of these actions. Discuss whether self-correction is possible for either model - if so, what is the process. Discuss the costs and benefits of self-correction in this case relative to government intervention.