Question

Due to the corona virus,

How much of a decline do you anticipate for the Second Quarter of 2020? Will be in recession? This would mean GDP was down during the first quarter and/or the third quarter. Will it last long enough to be the second depression in 100 yeards?  

On inflation/deflation,what would your life have been like during the early 80's when the inflation rate was in double digits? Imagine what life would have been like in Germany in 1923, when prices were rising daily and the Deutschmark was losing ground daily against the dollar?

Answer 1

Due to corona the economists are expecting a 5% decline in the second quarter. Many sectors are affected by social distancing measures and thus resulted in decline. GDP is expected to contract by 28% to 30% for the year 2020 and 7% to 8% decline on a fourth quarter.

Recession can be defined as a period where for two straight quarters, economic output contracts. Economists at Morgan Stanley and Goldman Sachs Group Inc. believes that corona outbreak can result in global recession. Some expects that the pandemic will not cause recession but will slow down the growth. The present situation of lockdowns and social distancing and closure of many firms result in deep economic crisis that may result in depression. It may result in creating the situation as in one hundred years ago. It creates a deeply divided society. Stock markets will be crashed and the economic health will be very bad.

Inflation decreases purchasing power of the people. It increases or encourages spending and investing more that tends to boost inflation. It pushes down unemployment. Deflation is when prices fall. It increases the purchasing power of the people, increase unemployment.

Germany experienced an out-of-control inflation. Inflation has initially crept up slowly but accelerating rapidly in late 1922. The price of a loaf of bread went to 200 trillion in 1923. The market was flooded with printed money and thus lowered its value, resulting in prices increase disproportionately. Real wage of salaried workers fell sharply and prices consumers have to pay didn’t match with the wages.