ECS3709 Assignment 3 Semester 2 2024 | Due September 2024
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Course
Applied Macroeconomics (ECS3709)
Institution
University Of South Africa (Unisa)
ECS3709 Assignment 3 Semester 2 2024 | Due September 2024. All questions answered.
Read the South African Reserve Bank Working Paper, “Identifying Supply and Demand Shocks
in the South African Economy, 1960–2020’’, which is written by Johannes W. Fedderke. The
link to this Working Pap...
, PLEASE USE THIS DOCUMENT AS A GUIDE TO ANSWER YOUR ASSIGNMENT
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commit.
Read the South African Reserve Bank Working Paper, “Identifying Supply and Demand Shocks
in the South African Economy, 1960–2020’’, which is written by Johannes W. Fedderke. The
link to this Working Paper is:
After reading the Working Paper, attempt the following questions:
Question 1
1. According to Fedderke (2021), “supply shocks have declined in magnitude and amplitude
since the 1990s, while demand shocks remain relatively prominent.” Using the AD-AS model,
illustrate graphically and explain how the temporary demand shocks, experienced during the
COVID-19 outbreak, affected the level of prices, output, and employment in South Africa.
Assume that there is no government intervention and no monetary policy response to restore the
economy to its initial equilibrium.
In the South African Reserve Bank Working Paper by Johannes W. Fedderke titled "Identifying
Supply and Demand Shocks in the South African Economy, 1960–2020," Fedderke analyzes the
nature of supply and demand shocks over a 60-year period, noting a decline in supply shocks and
continued prominence of demand shocks since the 1990s. This analysis serves as the foundation for
addressing the temporary demand shocks experienced during the COVID-19 outbreak in South
Africa, which can be explained through the Aggregate Demand-Aggregate Supply (AD-AS) model.
Temporary Demand Shocks During the COVID-19 Outbreak: An AD-AS Analysis
The AD-AS Model Overview
The AD-AS model represents the relationship between aggregate demand (AD) and aggregate
supply (AS) in determining the equilibrium output (real GDP) and price level in an economy. The
model is graphically depicted by two curves:
The AD curve slopes downward, indicating that as prices decrease, the quantity of goods and
services demanded increases.
The AS curve can take different forms depending on the time frame. In the short run, it may
slope upward due to rigidities like sticky wages and prices, while in the long run, it becomes
vertical, reflecting the economy's full productive capacity or potential output.
In this framework, demand shocks cause shifts in the AD curve. Positive demand shocks shift the
AD curve to the right, increasing output and price levels, while negative demand shocks shift it to the
left, reducing output and prices. During the COVID-19 pandemic, South Africa experienced a
significant negative demand shock, which can be examined using the AD-AS model.
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