Question

What did economic data tell us about the health of the economy on February 1, 2020 before the advent of the COVID-19 pandemic. Assess the health of the U.S. economy on February 1 by evaluating the key economic indicators that we have looked at in this course. How close was the overall economy to potential GDP and the natural rate of unemployment? Was the economy experiencing an inflationary or recessionary gap? The relevant economics statistics that you should discuss include the growth rate of real GDP, the unemployment rate, and the inflation rate at a minimum. You are encouraged to discuss and evaluate other economic indicators such as stock market indices that could add to a more complete picture of the state of the economy as of the beginning of our course. of February 1, 2020 (before the rapid spread of the Coronavirus) Was the United States economy’s Short Run Aggregate Supply Curve? Explain your answer carefully using As economy operating in the Keynesian, intermediate, or neoclassical portion of the the data and information that you have gathered regarding real GDP, unemployment, the GDP deflator, and inflation in the previous discussions. You should discuss the concepts of potential GDP and the natural rate of unemployment to receive full credit

Answer 1

Since oil prices go negative, the US wTi crude oil prices remain unattractive as storage costs get higher and supply remains higher because oil plants cannot be closed and thus US economy receives almost zero prices on selling in short run and economic growth deepdives as unemployment toonrises because of low revenues and low forex reserves.

Coronavirus has had huge impact on economic growth due to lockdown and shutdowns and social welfare losses.

The economic growth remains subdued as Aggregate demand and consumption both fall simultaneously also leading to fall in prices and inflation.

Investment is pumped out due to falling interest rate regime and lower economic outlook of companies.

Government spending is ramped up due to an expansionary fiscal policy by reducing taxes and spending. Also net exports go negative as imports surge due to supply shocks.

Negative growth in GDP causes high unemployment and lower inflation based on Philips curve movement.

Thus in short run, aggregate supply is high but aggregate demand is low and real GDP falls. However in long run the economy stabilises.

The economic growth has been well short of potential GDP hence faces recessionary gap. Also unemployment has crossed natural level Of unemployment since its beyond 20 percent.

The US has been great in fiscal stimulus of 484 billion dollars and US Fed unlimited bonds buying programmes worth 2 trillion dollars with rate cuts, CRR and SLR and liquidity coverage ratio cuts. Triggering automotic stabilizers and combined above policy will help alleviates financial distress and grow economic growth throufh higher consumption and disposable incomes.

The supplyvof credit availability rises causing its demand to go down considerably.

Sijce the interest rates are cut, the banks shall transmit easier loans availability at lower rates and thus loan markets will grow enormously.

However the cases has risen to 1 million approximately and states have been relaxed and thus caused havoc.

To avert this crisis, US must impose lockdown and gradually open economy using partial lockdown only after 2 months of complete lockdown. Major boost towards creating vaccination and healthcare for curing patients is required

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