Read the article “Reeling World Economy Suffers a Powerful Disinflationary Shock”.
a. The article documents how the U.S. was experiencing falling output and falling inflation. Was this likely due to a supply shock or demand shock?
b. The AS-AD model states the lower prices increases aggregate demand but the article argues that falling prices could decrease demand. Explain why falling prices could decrease demand.
c. Some of the economists quoted in the article state that the pandemic could increase inflation in the long run. Summarize their argument.