Question

a). You are required to use aggregate demand and aggregate supply analysis, explain in detail how COVID - 19 affect each component of aggregate demand and aggregate supply of Oman’s Economy. Remembers marks are allocated based on detail explanation and in text citations using APA style! Minimum ½ page.

B. Draw diagram of aggregate demand and aggregate supply and explain the effects COVID -19 Oman’s Equilibrium real GDP and price level, unemployment and economic growth. Remembers marks are allocated based on detail explanation and in text citations using APA style! Minimum ½ page.

A. Explain appropriate fiscal policy and monetary policy to combat the effects of COVID-19 on Oman’s economy. Remembers marks are allocated based on detail explanation and intext citations using APA style! Minimum ½ page.

(please when you write and draw write understanding words )

Answer 1

a)

Coronavirus (COVID-19) is having a significant impact on every aspect of our lives in Oman and other countries across the world.

The pandemic is having a variety of adverse consequences for business including interruption in supplies, rising costs and unforeseen changes in demand, customers or suppliers are experiencing difficulties in meeting contractual obligations. Of course this may also be relevant if business is struggling to meet a contractual obligation.

Oman oil demand has been hit hard by the novel Coronavirus.

Factory shutdowns are slowing the flow of products and parts in oman this is affecting companies as well as customers.

Businesses are dealing with lost revenue and disrupted supply chains due to factory shutdowns, millions of people remaining in lockdown in dozens of cities and other countries extending travel restrictions.most economists would agree that the pandemic combines aspects of both supply and demand shocks. A supply shock is anything that reduces the economy's capacity to produce goods and services, at given prices. Lockdown measures preventing workers from doing their jobs can be seen as a supply shock. A demand shock, on the other hand, reduces consumers' ability or willingness to purchase goods and services, at given prices. People avoiding restaurants for fear of contagion is an example of a demand shock. Additionally, as service sector workers lose their jobs and income, they stop purchasing all kinds of goods, such as cars and appliances, which can also be thought of as a sectoral demand shock.

b)

​​​​Pandemics can have long-lasting adverse effects on the ECONOMY.

Macroeconomic costs can materialise through both supply and demand effects. In response to an epidemic risk, workers may limit social interactions by reducing both labour supply and consumption.Supply side channel in a 1918-like pandemic scenario, by combining an estimated loss of employee work days with an estimated productivity per worker.They conclude that, in the first year, the pandemic reduces GDP by about 2.3%. To assess the demand side, the same study draws on the SARS episode of 2003 and assumes that a pandemic’s effects would be especially severe among industries whose products required customers to congregate. The overall demand side effects would reduce GDP by 2%.

Unemployment rate of Oman from 1999 to 2019.

C) Government announced relief measures to mitigate its economic impact and help individuals and businesses navigate these unprecedented times.

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Oman Government measures to address COVID-19

This newsletter highlights the key economic and tax measures taken by the government of Oman in response to the outbreak

Ashok Hariharan

Partner and Head of Tax KPMG Lower Gulf Contact

tax flash

The rapid spread of the novel coronavirus (Covid-19), which has been declared a pandemic by the World Health Organization, is adversely affecting economies and businesses around the world. Governments are announcing relief measures to mitigate its economic impact and help individuals and businesses navigate these unprecedented times.

This newsletter highlights the key economic and tax measures taken by the government of Oman in response to the outbreak:

1. Economic measures

On 18 March 2020, the Central Bank of Oman (CBO) announced a comprehensive incentive package to inject additional liquidity of more than OMR 8 billion (USD 20.78 billion) into the economy. Key measures announced as part of the package include:

Lower capital conservation buffers by 50%, from 2.5% to 1.25%

Increase the lending ratio/financing ratio by 5%, from 87.5% to 92.5%, on the condition that this additional scope be reserved for lending to productive sectors of the economy, including the healthcare sector

Accept requests for deferment of loans/interest (profit for Islamic financial institutions) for affected borrowers, particularly SMEs, with immediate effect for the coming six months without adversely impacting the risk classification of such loans

Defer the risk classification of loans pertaining to government projects for a period of six months

Local banks to consider reducing existing fees for various banking services and avoid introducing new fees in 2020

Reduce the interest rate on repo operations by 75 basis points, to 0.50%, and increase the tenor of repo operations up to a maximum of three months

Decrease interest rate on discounting of government treasury bills by 100 basis points, to 1.00%

Reduce the interest rate on foreign currency swap operations by 50 basis points and increase in the tenor of swap facility up to a maximum period of six months

Lower the interest rate on rediscounting of a bill of exchange and promissory note (with two signatures) by 100 basis points, to 3%

Decrease the interest rate on rediscounting of a promissory note with acceptable guarantee by 100 basis points, to 3.25%

Reduce the interest rate on rediscounting of a promissory note accompanied by trust receipt by 125 basis points, to 3.50%.

In addition to the above, on 23 March 2020, the CBO announced additional measures urging banks to identify the ‘most critical functions’, which need to be carried out without disruption, and provide suitable staff (and backup), both at the premises and working from home.