Question

The role of the European Union during coronavirus

Write a report that assesses whether the Eurozone countries have so far responded adequately to the economic challenges that have arisen during the coronavirus crisis.

The report should include the following sections:

• Section 1. (25%) The Eurogroup is debating EU-wide unemployment insurance scheme to mitigate the effects of the coronavirus crisis.
  • Define the different types of unemployment and discuss which one is the target of such a measure.
  • Analyze the possible effects of this measure using the concepts delivered in class.

• Section 2. (25%) The Eurogroup is discussing issuing Bons to cushion the economic downturn.
  • In the Eurozone, which institution oversees monetary policy, and which one controls fiscal policy?

The main goal of the European Central Bank is controlling the inflation. Why it is so important? To answer this question:

• define aggregate demand and aggregate supply in the long-run and short-run (use graphs), and
• explain the main effects of rising prices in the economy using the concepts delivered in class.

• Section 3 (25%) Fiscal and monetary policies
• • Provide information on fiscal and monetary policies that are being (or are planned to be) implemented as a response to the coronavirus crisis to prevent a fall of aggregate demand.
  • Provide two examples of fiscal policies in face of an economic crisis and discuss their positive and negative effects on aggregate demand. Use the concepts of “multiplier effect” and crowding-out effect” delivered in class. This section must include a written explanation.

• Section 4. (25%) Coronavirus crisis will certainly cause a fall of global trade.
  • Explain what the expected impact of the fall in international trade on the Eurozone economy might be. Use the AD/AS model and the concepts delivered in unit 8. This section must include a written explanation and charts.
• Bibliography

Answer 1

ANSWER:-

Unemployment is a condition in which a person willing and able to work but unable to find a job.

There are two main types of unemployment:

Cyclical and natural.

• Natural unemployment is a combination of structural, frictional and seasonal unemployment.   
• Cyclical unemployment occurs when economy is in a recessionary phase. Aggregatedemand is down and hence companies are forced to reduce manpower as products or services are not sold in the market. Eg. After 2008, due to recession high unemployment occurred in India. During COVID-19 many industries will close down and cause recession making people unemployed.

Under natural unemployment three types:

Structural, frictional and seasonal.

Structural:

• When economy undergoes a change eg. primary to secondary sector shift or an industry changes a location then structural unemployment occurs.

Frictional:

• When there are jobs in the market but there is no information about it.

Seasonal:

• When a job is seasonal. eg. tourist guide becoming unemployed in off season.

There is always some kind of natural unemployment in any country.

Unemployment insurance scheme target cyclical unemployment as it is a demand side problem. This also acts as automatic stabilizer in an economy.

Unemployment benefits are paid which boosts income and drives spending. This shifts aggregate demand to right and real GDP will also increase.

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