Question

“The great lockdown due to COVID-19 is projected to shrink global growth dramatically. There is continued severe uncertainty about the duration and intensity of the shock. It is very likely that this year the global economy will experience its worst recession since the Great Depression, surpassing that seenduring the global financial crisis a decade ago”

Most central banks around the world have cut interest rates to around or below zero to blunt the effect of the coronavirus. Fiscal stimulus packages have varied more. The U.S. is providing about 10 per cent ofgross domestic product in support and Germany about 4.5 per cent, while Japan’s program is worth about20 per cent of GDP, according to Bloomberg Economics.

The significant actions of Bank of Canada include monetary stimulus, support to key financial markets and liquidity facilities to individual financial institutions to reduce systemic stress. Examine the force of the key policy decisions in 2020 on the following economic indicators of Canada:

1. Unemployment rate

2. Canadian Dollar performance against U.S. Dollar, Euro, Mexican Peso, and Pound Sterling.

Answer 1

Monetary stimulus through cutting overnight benchmark steady rate at 0.25% and thus focus on quantitative easing program.

This can increase liquidity in the economy and thus it can increase investment , which may led to increase production and may create new jobs ,which increase demand in the economy. Thse measure help to comes out from recess by increase demand. These type of stimulus package are driving force for economy as it create cycle of income and multiplier of gdp increase. Thus may results in employment creation. And candion dollar performance against other countries currremcy will be decided by , how they will fight with recession and how long they will take to recover from this situation and how their export import or trade balance in favor of Canada or other countries.

Overall these things will depend on effective implemention of these stimulus package and how long willl they take to recover from covid 19 and extent of effect of covid 19 and recession impact.