Question

The COVID virus has had an impact on all facets of our economy. Please discuss the impact it has had on each of the variables below over the net 12 months. Explain if the will increase, decrease, or remain unchanged and the reasoning behind your decision. You do not have to cite the textbook, but all other sources should be cited according to APA format.

1. C (consumption) 2. I (investment) 3. G (government) 4. Imports 5.. Exports 6. Taxes 7. Government budget (T-G) 8. GDP 9. The value of our dollar in comparison to the US dollar. 10 The unemployment rate 11. The supply of money (M1) 12. The prime interest rate

Answer 1

Coronavirus is taking a toll over most countries wherein people are under lockdown and practising social distancing. It has impact on all facets of economy.

Consumption- Consumption will decrease in the economy wherein countries are under lockdown and not going out. All the malls, social locations and meetup sspots are closed. Although,basic needs are not affected much but other consumption habits jave changed. Also, because people are losing jobs and recession is going to hit globally, consumption is going to fall drastically.

Investment- Although, consumption needs have reduced and people prefer to save during these times, savings are going to increase. Central banks efforts to reduce interest rates is also going to spur borrowing needs but consumer and investor confidence is very low. People may not invest while the stock markets have crashed. But stock prices are very low and there is a good opportunity for investors to invest. So, investment is expected to increase.

Imports - Imports for pharmaceutical and basic needs like grains, cereals may increase. But since, all the countries are saving back their goods under the lockdown and the difficult situations, imports will reduce.

Exports- Exports are also expected to reduce due to the above mentioned reason for imports.

Government expenditure on basic needa and healthcare is going to increase drastically. Taxes may be cut to spur spending and revive the economy. Government budget will reduce.

Value of GDP will reduce as consumption will reduce, people are unemployed and lose their jobs due to the slowdown. Consumer and investor confidence is low.

Exchange rate will remain almost unchanged as this is a global pandemic and all the countries are hit, so there are less chances that one country loses its value as compared to the other.

Unemployment rate will increase. Due to the pandemic globally, companies are under loses and stock markets crash. People are laid out of their jobs to cut any cost during the pandemic situation.

Money supply will be reduced because the transactions in the economy will reduce. People are spending less due to pandemic.

Interest rates are reducing because central banks want to revive the economy out of the slowdown and increase consumer spending. So, interest rates will reduce.