Question

1) In the past 3 weeks there have been considerable fiscal and monetary policy initiatives. Give an example of one of each of these. Indicate what was done, why it should have an effect on the economy, and some possible problems that may lead to is not having as great an effect as ‘anticipated’.

2) We are seeing massive unemployment numbers in recent weeks. Provide your thoughts on what type of unemployment we’re seeing, and whether you feel the ‘bads’ associated with unemployment will be felt sooner or later based on other factors you’ve seen/heard/ and learned about. Be sure to include those factors and the effects you think they will have on the unemployed in terms of making it better or worse. (again, you’re going to be graded on how well you support your thoughts using theories and information learned in class, not necessarily on whether you are ‘actually correct’)

Answer 1

a) The uncertainty surrounding the pandemic that has affected nearly 150 countries globally poses serious questions on the economic situation and hiw to tackle the crisis that's going to affect the global economy.
The major fiscal policy initiative tajen in the past 3 weeks isthe passing of $2 trillion coronavirus relief bill . Although it is unclear how quickly the government will disburse some of the money such as increased unemployment benefits and small business loans, amount of $1200
is expected to be paid directly to some of the individuals within 3 weeks. The impact of this relief bill would help ward off the effects of unemployment for the working class and prevent bankruptcy of the small businesses. The possible problem with this measure is the ambiguity of its implementation as the banks are still unclear on hiw to underwrite these loans and are waiting technical guidance from the government.

The major monetary policy change introduced by Federal bank is an interest rate cut by 50 basis points. This is expected to increase the credit demand and keep the economy afloat. But the
The impact if interest rate cut might not be as big as anticipated because the parts of the economy that are likely to be most severely affected by this pandemic are possibly not at all interest-sensitive.

b) The current unemployment in the economy is mainly cyclical unemployment. As the world battles the health pandemic caused by covid-19 the global economy is slowing down with increasing fears of a global recession. The recession that is setting in due to aggregate supply shock would eventually show an impact on aggregate demand side of the economy unless the supply chains that have been disrupted by this pandemuc are restored and geared upto fully functional chains with minimal turn around time as the health situation stabilizes. The bads associated with this unemployment phase will be felt sooner by the marginal sections and the working class of the economy as the companies start cost cutting.The bigger firms might be able to sustain this supply shock and support its employees but the smaller firms will buckle sooner if the situation fails to stabilize soon.
Government financial aid might be the only reliable solution for the working class if the economy goes into recession.