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Homework answers / question archive / Suppose that a pandemic disrupted normal economic activity in all countries across the globe
Suppose that a pandemic disrupted normal economic activity in all countries across the globe. Thanks to the negotiations of oil exporting countries, oil supply continued at pre-pandemic levels, a dramatic change in world oil prices occurred, tough. Suppose further that an effective vaccine has been developed rapidly within a year and herd immunity achieved in the world, which in turn helped everything excluding oil prices return to pre-pandemic normal. Therefore, the impact of pandemic on world oil prices has lasted longer than expected.
Explain the impact of oil price change on labor market dynamics. What happened to equilibrium real wage and employment after an effective vaccine? [5 points. Note that you are expected to use Demand-Supply analysis and explicitly show your work on necessary graphs by precisely labelling axes.]
Suppose that despite the rapid development of an effective vaccine, for some countries to achieve herd immunity took around 5 years. Do you think the natural rate of unemployment of those countries would be then affected? [5 points. Note that as an answer, Yes or No is not accepted, you are expected to explain your answer in detail.]
The Covid 19 has caused supply disruptions all over the world hurting the movement of goods & services.
(a)The covid vaccine has not come yet, given the uncertainities prevail for the future, the expected impact of a supply shock is shown above. The economy had deviated from the potential level of output owing to supply disruption, causing the real output and real incomes to fall causing the price rise. The fall in output caused lay-offs and a mismatch between supply and demand of labor as more people are willing to offer their labour at a lower wage rate.
(b) The natural rate of unemployment would rise owing to the economic impacts as it takes time for the recovery from current dips.
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