Question

500 words essay on the question - "In light of the COVID19 outbreak, do a short economic commentary (of not more than 1 page) on Fiji or any other economy, based on the findings of scientific economic research. Discuss economic growth prospects and implications for human welfare (in this country) following the crisis."

Answer 1

The Corona Virus crisis has meant that establishments except for those that provide critical services remain shut. As a result, in the economy of Fiji, the aggregate demand for goods and services domestically will surely decline. Fiji is a group of islands which is known for its tourism which is one of the highest revenues earning industries for the country.

The resultant of the Corona virus crisis is that the aggregate or total demand for these services of tourism and many other domestic industries such as textiles, manufacturing etc will be heavily impacted.

As the demand for goods and services goes down with the supply, unemployment levels will begin to increase in the economy. This is because suppliers try to limit their costs and contain losses if any. The aggregate expenditure of people will reduce and like the United States has experienced rising unemployment, Fiji will also experience the same. Most parts of the country will see a nationwide rise in unemployment and the access to modern facilities such as education, nutrition, health care etc all will come down gradually in the coming months.

The prices of goods and services would also see a decline. However, this is not going to be advantageous for the economy. The currency in circulation will go down

The resultant is that the government in Fiji and most other economies would reduce taxes so that aggregate demand can increase over a period of time. They are also expected to take other measures through the Federal Reserve or the bankers bank, through which the interest rate for commercial banks would be lower due to which people would be able to get loans relatively cheaply and the economy would revive quickly once the lock down and situation eases out.

We can explain the current scenario with the help of the following diagram: -

Here we see the net effect of the corona virus on the economy. As a result of various industries such as Tourism, Textiles, Agriculture Manufacturing etc shutting down, the demand for goods and services in this market falls drastically.

The reduced demand is indicated on a new scale. We also see that supply also falls and the new price is P2. The Gross Domestic product goes down from Q1 to Q2.

Once, the government comes into play and the virus is eliminated from the economy, the tax breaks and other concessions which the government is providing would help in bringing back the equilibrium to the desired levels.

Please feel free to ask your doubts in the comments section if any.