Question

how will family income affect the economy short term GDP due to the covid19

Answer 1

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Question;:

Answer:

Introduction:

We all know that the COVID- 90 crisis has became a global crisis. Because of this pandemic situation global economic, social and political activities have affected badly. People are staying at home and major economic activities are still close. People are losing their job. Companies are getting bankrupt of falling in financial trouble. Millions of people have lost their jobs and others millions of people are working at discounted wages or lower wage rate because of pay cut.

Impact of COVID-19 on Family Income:

We have seen above how people have lost their job or working at lower wages because of pay cut. So, its negatively affect the family income and the income of families have reduced and most of the people have falling in financial trouble or got bankrupt.

Affect of Low Income on GDP:

we all know that relation between aggregate demand (AD) and total output/GDP is positive and both are strongly correlated with each others. AD and GDP move together in the same direction. AD is the total demand of goods and services during a specific period at different price level within a economy. AD is directly affected by the consumption, government expenditure, investment and net export. Here, the contribution of consumption is more than 62% in AD. So, its play a vital role in determination of AD level.

Now we come on the question. here we have seen the the income level of people have reduced because of COVID-19 crisis so, its directly affect their consumption level and confidence level of consumers. Because of lower the consumers confidence and lower income level, people are spending less so, it will reduce the AD. Lower the consumption level means lower the AD and lower the AD means lower the GDP growth rate. So, it will reduce the GDP.

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