Starting with the long run equilibrium in the aggregate demand and aggregate supply model, consider the macroeconomic effects of the lock down measures due to COVID-19.
a. Explain the development in the AD-AS framework in words.
b. Show Part a) using AD-AS figure. Ensure to include short run supply curve, long run supply curve and aggregate demand and to label x-axis and y-axis. Also, mark the equilibrium price and quantity before and after lock down.
c. Fiscal and monetary policy measures can be taken as the response to development in part a). Explain the policy measures in writing.
d. What are the possible long run impacts of the recommended policy measures in part c). Explain the impact in writing
e. Continue on the long run, the government starts to register budget surplus after having paid off the large budget deficit incurred as the policy measured in part c). What happens to the quantities of saving and investment and real interest rates with this development? Explain in writing.