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In: Economics

Covid 19 is a crisis primarily caused by biology, but it has resulted in economies shutting...

Covid 19 is a crisis primarily caused by biology, but it has resulted in economies shutting down worldwide. The US government has already introduced a stimulus package close to $2 trillion, about one-tenth of total GDP and is working on another stimulus. The Federal Reserve has lowered interest rates and is more involved in private lending than ever before. The European Union, Japanese goernment, and others are spending hundreds of billions to keep the economy afloat. Do you believe a financial crisis is a serious risk? What are the risks of these government actions?

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Expert Solution

Covid 19 pandemic induced recession is very dangerous for whole world Economy as demand is lowest in the economy and job cut and increase unemployment increase risk of food security as food prices are increasing. Thus to avoid this situation government of different countries is providing fiscal and monetary Stimulus package and try to increase demand in the economy as a result production can increase and thus employment generation may lead to increase income of household and thus again investment , demand increase thus economy may come out of recession as gdp and income multiplier will work.

Negative effects if such stimulus package are increase fiscal deficit in longer term will be bad for economy as it decrease reputation bof countries as destiny of investment. This may turnout sone Bank into NPA as they are relaxing more and if they don't get their money back then it may create problem.

Inflation may rise sharply as money supply increasing .


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