Find aggregate level of expenditure and output

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The COVID-19 pandemic has caused an unprecedented global economic downturn and a deep recession worldwide. The economic recovery in Australia will depend on how quickly the country can contain the spread of the virus, and of course, the availability of a vaccine.

Let us assume an optimistic scenario, where the virus has been contained effectively and a coronavirus vaccine is available in Australia.

(a) Using an Aggregate Expenditure-450 line diagram, explain how the Australian economy may react to this optimistic scenario in the short-run. In your answer, discuss how each of the components of GDP would be affected.

(b) When the lockdown restrictions are completely withdrawn, people will likely change their spending behaviour upward, which ultimately may increase the marginal propensity to consume. Using an Aggregate Expenditure-450 line diagram, explain how this will affect the aggregate level of expenditure and output

Reference no: EM132639548

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