Question

In: Economics

what elements in "Understanding the Economic Shock of Coronavirus."

what elements in "Understanding the Economic Shock of Coronavirus."

Solutions

Expert Solution

The economic shock of Cornovirus relates both to supply and demand factors.

Most firms face a broken supply chain - workers are not tuning for work and raw materials can not be procured, especially those which are imported as there are several restrictions on the movement of goods and people by most of the governments - their production level has gone down considerably and thus there is a negative supply shock. As a result, firms. face mounting losses and in order to minimize them, they engage in large scale layoffs. The unemployment rate rises considerably. This leads to a fall in the income levels of the people and with lower incomes, people's purchasing power declines, and they consume less. Thus the aggregate demand in the economy goes down and there is a very strong negative demand shock.

Thus, due to both severe demand and supply shocks, economic growth is going to face its toughest challenge in a long time in the recent few months (possibly years) as the COVID-19 pandemic continues to wreck markets and economies globally. The negative impact of the shocks have been already estimated to have surpassed the effects seen in the 2008 recession.;


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