Question

How is the corona virus crisis expected to influence the capital stock of the US economy? Discuss your answers for the given scenarios below. Make sure to clarify the differences between the two scenarios:

-Case 1: We found a cure for the virus in July 2020 and we go back to our lives as of August 2020.

-Case 2: We found a cure for the virus in July 2021 and we go back to our lives as of August 2021.

Answer 1

Case 1 - If we found the cure for the Corona Virus, ie. if we find and develop a vaccine successfully - it generally takes a year after the vaccine is successfully launched in the market for wide usage - But here in this case, if it is found the vaccine in July 2020, the capital stock market will grow at faster rates, and will recover faster from the down levels that it has been hanging on before the vaccine. Investors have a high confidence now that the economy will be normal again and business will rise again as people will be back to work from August 2020.

Case 2- If we find the vaccine in July 2021, it will take a while for the capital stock market to recover because the vaccine is yet to be made, if we compare it with today's scenario. There will be a large amount of sell offs by the investor now, becuase they have very low confidence. If we compare it with today, it is very uncertain if there will be a vaccine developed or not, hence the stock market is likely to recover at a very slow pace. The economy will not be normal soon and in future we will go to work normally, and thus investors will shy away from invesments in market because they know that it will take time for recovery of the businesses.

Hope it helps. Thanks :)