Question

1. Covid-19 pandemic has adversely affected economies world over in various ways. The virus
is believed to have been originated in China. The Chinese authorities had to close down its
borders to controls spread of the virus globally. This means that the Chinese industry is not
able to export goods that are used by industries world over as inputs in their respective
production process. India, much like other countries is adversely affected, as her
production capacity is restricted due to unavailability of inputs that it receives from
China.
Assume that the Indian economy is in long-run equilibrium.
a. Explain how the India's short-run equilibrium is affected as a result of lockdown of
Chinese economy owing to Covid-19.
b. Explain how the Indian economy would return to long-run equilibrium in the following
cases
(i) The policymakers do not intervene.
Policymakers intervene.​

Answer 1

Answer:

Covid-19 pandemic has adversely affected economies world over in various ways. The virus

is believed to have been originated in China. The Chinese authorities had to close down its

borders to controls spread of the virus globally. This means that the Chinese industry is not

able to export goods that are used by industries world over as inputs in their respective

production process. India, much like other countries is adversely affected, as her

production capacity is restricted due to unavailability of inputs that it receives from

China.

Assume that the Indian economy is in long-run equilibrium.

a. Explain how the India's short-run equilibrium is affected as a result of lockdown of

Chinese economy owing to Covid-19.

b. Explain how the Indian economy would return to long-run equilibrium in the following

cases

(i) The policymakers do not intervene.

Policymakers intervene.