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Title of the Page

Student’s Name

Institutional Affiliation

Course Number and Name

Instructor Name

Due Date
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Task 1

From the above graph, job openings decreased sharply in 2020 due to the COVID-19

pandemic breakout. From 2007 to 2009, the labor market experienced a huge shock due to the

great recession caused by increased housing prices, bank crisis and a fall in stock market. An

increase in job vacancies over time has led to a rise in job-finding rates and a decrease in job

separations. Thus, job openings are directly proportional to the job-finding rate and inversely

proportional to job separation.

From the Federal Reserve Bank of St. Louis, the Current Population Survey Data contains

information about the job separation rate in the US. Laid-off employees tend to stay away

from finding new jobs because of low numbers in job openings. During the great recession

(2008-2009), the rate of job separations steadily increased from 1 % to 1.8%. On the other

hand, the levels of jobs in thousands decreased by 50% as observed on the chart. Many

workers lost their jobs and didn't look for new jobs. Therefore, it is clear that job

vacancies/openings can predict job finding rates and job separations as they are strongly

correlated (Bullard, J., 2014).

Task 2
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A Graph Showing Relationship Between the

Number of Employed, Unemployed, and Labor
Force
180000
160000
140000
Number of People

120000
100000
80000
60000
40000
20000
0
5 9 2 7 1 4 9 3 6 1 5 8 3 7 0 5 9 2 7 1 4 9 3 6 1 5
45 42 40 37 35 32 29 27 24 22 19 16 14 11 09 06 03 01 98 96 93 90 88 85 83 80
20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 37 38 39 40 41 42 43 44
Number of Years

Labor force Number of employees Number of unemployment

From the above graph, one can observe that the number of people employed (E) in the US

dropped drastically from 2007-2010 due to great recession that struck the US in 2008. Also, a

downtrend was observed in the year 2020 due to COVID-19 pandemic that greatly shocked

the global market. The same kind of trend was also observed on the number of labor force (L).

On the other hand, the number of unemployed (U) rose in 2008 and 2020 due to the two

recessions. Therefore, the line chart confirms that a decrease in the labor force and an increase

in the number of unemployed people causes a corresponding decrease in the number of people

employed i.e. E is low when L is low and U is up.

Task 3

Regarding the COVID-19 pandemic outbreak in the world, public health bodies such as the

WHO campaigned for wearing masks, keeping social distancing, and washing hands,

impacting the economy negatively. This pandemic caused resulted in the collapse of the

whole economy, mainly those jobs that require interpersonal contacts, such as those working

in the restaurant and salon business. The government of the USA shut down the firms to
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minimize the number of people coming in contact with one another. This has left many

workers without jobs because of the lockdown. (Baek et al., 2020)

During the COVID-19 pandemic, the GDP of the USA dropped by 8.9% in the second

quarter, leading to the most significant contraction in more than 70 years (BEA, 2021).

COVID-19 resulted in a historically swift and profound reduction in economic activity and

employment, resulting in an economic recession. The decline resulted in a drop in the supply

of goods and services available to the people. Similarly, it also decreased the demand by the

consumers since their purchasing power was reduced massively due to the massive layoff

from jobs.

After the health-induced reduction, the economy's labor market faced a negative demand

shock and a positive short-term aggregate supply. Those working in service sectors such as

restaurant, salon, and tourism industries could return to their jobs. This gave them purchasing

power, and they could afford goods and services with a lot of ease compared to before. The

demand for goods went down since many people could then afford them. This led to a

decrease in the market for the consumption of goods as compared to supply. Many companies

would resume their jobs and offer their services as before; hence, this increased supply

decreased product demand since the store was in abundance in the market.

The prices of goods and services also reduced since the labor force in many manufacturing

and production industries could return to work.

The availability of labor causes the demand curve to shift rightward since an increase in the

supply of goods and services reduces price since the goods and services are in surplus in the

market.
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If the health concern were to remain, the output prices would increase due to increased

aggregate demand. The aggregate demand will increase because the consumption, investment,

and export minus import spending will rise.

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Price ($)

50 S1 S2

40

30

20

10 D1

1000 2000 3000 4000 5000 output

In the above graph, when aggregate demand increases, the price will also increase, and the

quantity of the output will be low. Since the production is scarce, the consumers will be

forced to buy at a higher price to get the product. When supply increases from S1 to S2, the

price will decrease from 30$ to 20$. This is because the output demand fell since the surplus

in the market leads to low prices.

Task 4

Chain Effects of induced and unprecedented government spending on the Keynesian cross model
(Expenditure Output approach) and the multiplier.

The planned expenditure function, PE according to the Keynesian cross graph, E = C (Y – T)

+ I + G. The equilibrium condition is achieved by the actual expenditure, Y= planned
expenditure (PE). An increase in government spending from G0 to G1 shifts the planned
expenditure upwards.
The equilibrium moves from its α to β. The change in Y equals the product of the government
purchases multiplier and the change in government spending: Y = [1/ (1 – MPC)] *G (RE
Hall 2009). From the graph the income rises towards a new equilibrium and the outputs
increase. Given that the marginal propensity to consume is 0.08 then the governments
purchase multiplier ΔY/ΔG= [1/(1-MPC)]. Given that our MPC is 0.08 then the government’s
purchase multiplier = 1/1-0.08 = 5. An increase in the federal government spending causes a 5
times increase in the incomes,
 Aggregate Y = PE 7
Spending
E

PE = C(Y-T) + I + G1


PE= C(Y-T) + I + G0

8896 

4875

19636 21362

Tax increase of ΔT reduces the disposable income Y-T by the said tax increase of ΔT.
Consumption thereby reducing the consumption ΔC which is given by = -MPC* ΔT. Firms
reduce outputs and the incomes fall into a new equilibrium.
Impact of increasing government spending on the AD and LRAS
Reduction of the money supply shifts the Aggregate Demand schedule and brings the economy from
1 to 2 in the short run (Rahman 2011). An increase in governments spending’s shifts the AD curve
from 2 to 1

LRAS
P

56
2 1 SRAS
AD
3
AD’

0 445.89
Y
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An increase in money demand will shift the Aggregate Demand curve to the left. Since the
economy is in recession prices steadily rise and quickly to bring back the economy to full
employment. The Keynesian cross would shift up, resulting in high output. The IS curve will
shift left, resulting in high output and higher interest rates. It is not asked, but you should
understand why the loss in output in the IS-LM graph is actually high than the loss in output
from the Keynesian cross (through the money market, high output results in higher interest
rates. This in turn affects the goods market by making raising investment, thus offsetting some
of the loss.
Impact of increasing government spending on the IS LM model
Increase in government spending only affects the IS curve through its effect on the
intersection on A1
This would be interpreted as the subsequent effect of increase in government spending to the
model lead to a shift in the IS curve to the right.
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i
New equilibrium in the
a1 goods and money LM1: Y = a3 + a4 i
markets

C
LM3
9 A

B
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References

Brinca , p ,. Duarte J.B , & Faria-Castro, M (2021).Measuring labor supply and demand shock

during COVID-19 . European Economic Review, 139,p.103901.

Bullard, J. (2014). The rise and fall of labor force participation in the United States. Federal

Reserve Bank of St. Louis Review, First Quarter, 96(1), 1-12.