ECO 305, Final Project David Wiczer Due May 14 at 5:30PM. Work on this without the help of others, but you may use your notes and book. Interpreting The COVID-19 Recession We’re currently experiencing the sharpest recession ever, with the fastest, largest loss of employment since records have been kept. At the same time the Federal Reserve and Congress have utilized their policy tools to try to ameliorate the situation. In this final, I would like you to interpret these events through the models presented in class. 1. What were the “shocks” to the economy. Within our short-run model, which curves shifted (i.e I-S? Investment demand?) and in what way. After showing the underlying curves that shifted, how has Aggregate De- mand (AD) and Short- and Long-run Aggregate Supply (SRAS, LRAS)shifted? For each curve that you believe shifted, present some data to show it. Much of the best data on this has not yet been collected because this is happening quickly and data often is reported with several months’ delay. If that’s the case, show the data (i.e. a time-series plot of it) prior to the crisis and what you think has happened recently. 2. With all of the shifts in curves, what has been the effect on equilibrium val- ues of our main endogenous variables? That is, how have r, Y, P changed in this short-run period? 3. What effect do we expect of the Federal Reserves actions (increasing the money supply) and of Congress’ stimulus (decreasing taxes and increasing spending). Again, show which underlying curves shift and how that affects AD, SRAS and LRAS. 4. Suppose policy had not changed, according to the theory, what would happen to GDP and prices eventually (assuming nothing else changes either, in this period)? 1 For each of these, your answers do not need to be particularly wordy. For each curve you describe shifting, probably only a sentence or two of explanation is re- quired. Do not worry about hand-drawing the figures. The data you present can take the form of time-series plots similar to those you collected for homework. 2
