Question

In: Economics

How has the COVID-19 pandemic rippled through international economic channels and affected the aggregate supply, aggregate...

How has the COVID-19 pandemic rippled through international economic channels and affected the aggregate supply, aggregate demand, and macroeconomic status of countries with open economies (such as U.S., Europe, China etc. )?

Solutions

Expert Solution

We are living in a globalized world where the countries, economies and people are dependent on each other. A country might be supplying raw material like metal to another country or to the world while importing food items or pharmaceutical drugs from other countries. The US is the largest emitter in the world while China is the manufacturing hub of the world. The smaller countries of Europe has joined the forces to form an economic giant in the form of Eurozone and it is largely export oriented.

The recent outbreak of COVID-19 which has been declared as a pandemic has completely changed the equation at least for now. The fast spreading virus has no vaccine right now so the only precaution is physical distancing and lockdown. This has resulted in stoppage of factories and markets where there are chances of physical proximity of people and risk of spreading the virus. The consequences are halt in production, transportation of raw material or finished goods so a significant decrease in aggregate supply. The aggregate demand has also taken some serious hit but it has been in the non-essential items such as fuel. The aggregate demand for food items and other essential products is facing inadequate supply and that is why the equilibrium price has been rose by manifold.

The extent of the damage to the economies in the US and Europe will be greater with Spain and Italy have seen thousands of deaths while the situation in the US is turning worse with each passing day. China has a controlled press and so the government is not passing the actual information. The death seems to be more than it has been reported but the damage to its reputation and economy will be far more. China has been down almost 7% in its GDP because of COVID-19 and lower demand from the world means it could witness a hit in the double digit.
Europe will also suffer but Spain and Italy likely to suffer more because of a less diversified economy.


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