, 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
[Marks: 15] 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.
To address this question effectively, you’ll need to:
1. Understand the AD-AS Model: The Aggregate Demand-
Aggregate Supply (AD-AS) model is used to explain price
levels and output in an economy. It consists of:
o Aggregate Demand (AD): Total spending in the
economy.
o Aggregate Supply (AS): Total production in the
economy, split into short-run and long-run.