Final answer:
To graph the short-term equilibrium for the economy of Southland using the Aggregate Supply and Aggregate Demand model, plot the AD and AS curves and find their intersection. In the short-run, a reduction in the labor force and consumer's income due to a pandemic will lead to a leftward shift in both the AD and AS curves, resulting in a decrease in the price level and real GDP. If the reduction in the labor force is permanent and the aggregate demand goes back to the previous level in the long-run, the equilibrium will be at a lower level of real GDP.
Step-by-step explanation:
a) To graph the short-term equilibrium for the economy of Southland using the Aggregate Supply and Aggregate Demand model, we need to plot the AD curve and the AS curve. The AD curve represents the total spending in the economy, and the AS curve represents the total output supplied by firms. The equilibrium occurs at the intersection of the AD and AS curves, where the quantity of goods and services demanded equals the quantity supplied.
b) In the short-run, if the pandemic reduces the labor force and consumer's income, it will lead to a leftward shift in the AS curve. This is because the reduced labor force will result in lower production capacity and hence a decrease in real GDP. Additionally, the decrease in consumer's income will lead to a decrease in aggregate demand, resulting in a further leftward shift in the AD curve. As a result, both the price level and real GDP of the economy will fall.
c) If the reduction of the labor force is permanent and the aggregate demand goes back to the previous level in the long-run, the AS curve will shift back to its original position. However, the equilibrium point will now be at a lower level of real GDP due to the permanently reduced labor force. The price level will depend on the overall supply and demand conditions, but it is likely to be higher than the original equilibrium level.