Question

A key role of government is to protect the well-being of its people – especially during emergencies such as the recent outbreak of the coronavirus. Discuss the macroeconomic impacts of the coronavirus, showing how policymakers may respond to such an exogenous shock

Answer 1

Now , the situation is worst due to the outbreak of covid 19. There is reduction in aggregate supply due to lockdown. There is entirely recession globally. There is decrease in output , income and employment . It is the supply side shock . at the same time , aggregate demand is less due to pessimistic consumer outlook and less income they have. Economy is facing worriment’s. Automatic adjustment cannot take place to revive the economy from depression. Role of Government through fiscal policy is essential. Government should increase spending and reduce taxes to promote supply of goods and demand. If the government provide stimulus package then production and employment will increase . With increase in income demand will also increase . In this way, Price level will remain the same and GDP and national income will rise. And economy will come out of the recession through government fiscal policy.