Question

During the novel coronavirus (COVID-19) pandemic, the government introduced lockdown measures and travel restrictions that severely reduced the trade of many small businesses. Singapore government is concerned about business closures, loss of income and unemployment in the markets concerned and is considering further interventions especially as the danger from the virus is beginning to subside. Using the demand-supply model, explain these phenomena in one or two markets of your choice. Advise which market interventions, if any, government should conduct in these markets and why.

Answer 1

Case 1. Impact of Covid 19 on loanable funds market .

with the wake of Covid 19 in Singapore , the economy got hit majority with falling of economic activities both with in the country and outside the country related to exports and imports. The direct impact of this was falling of capacity of individuals in the economy in terms of wealth , as the Economy is facing a Major slowdown. Loanable funds market face a great hit with this. With reduction in capacity of individuals in Economy, the supply for loanable funds fall. Not only the supply but demand also falls become the inability and uncertainty among individuals regarding the economic activities. .

This has caused the overall loanable quantity to fall in the economy( Q2). This directly impacts the investment in Economy to fall , which further reduces the aggregate demand and hence the GDP of economy.

In order to overcome this, the govt should release a monetary relief. Monetary relief can include low rate of interest from loans or increase in money supply in Economy. This causes both supply of loanable funds market and demand. Thus the stimulus in Economy is generated. And Economy restores to intitial rates of both rate of interest and quantity of funds supplied ( Q1).

Case 2 : Impact on demand and supply in goods market.

good market faces a fall in demand levels in the economy due to fall in capacity of individuals with falling economy. This causes fall in quantity and price of goods in economy. This fall is symbolised by falling GDP and deflation in economy. In order to revive the demand , fiscal expenditure are necessary for the economy . This will rise the demand levels as with aggregate demand rising due to expansionary fiscal policy , the economy comes back to the same level of production and quantity sold.

this is how market of Singapore can be managed by govt policies with the help of both fiscal and monetary policy interventions.