Problem
Several provinces in Canada announced lockdown in mid March 2020 as a safety measure against the COVID-19 pandemic. The lockdown requires non-essential business firms to stop doing business for a certain period. In the meantime, the pandemic results in many workers losing jobs, income, and spend less as they are worried about the future job prospect.
1) Explain how the COVID-19 pandemic and lockdown affect the AS curve.
2) Explain how the COVID-19 pandemic and lockdown affect the AD curve.
3) Put (1) and (2) together, show how the AS and AD curves shift in a graph, and show how the short-run equilibrium real GDP and price level are affected by the pandemic.
4) The government of Canada implements a Canada Emergency Response Benefit (CERB) to reduce the negative impact on the economy caused by the safety measures against the pandemic. Explain how CERB affects the short-run real GDP economy via the AS-AD model. Imagine a world in which the Government of Canada did not implement CERB, would the drop in GDP be larger, smaller, or equal to 38.7%?