Question

Today and due to the spread of Covid-19, we can observe that some sectors in an economy are expanding and others contracting, while the government very actively is intervening in the economy. Using the public economics framework, list and discuss at least three examples of government initiatives for the USA Remember to contextualize, define, exemplify, and illustrate relevant concepts, as well as including data to support your descriptions and analyses.

Answer 1

1.  The US government has formulated the CARS Act to salvage the economy and the inhabitants from the wreck caused by the pandemic. In One of its provisions the US government has announced a stimulus package worth 2.2 Trillion Dollars. Due to the pandemic, millions of people have lost their jobs, income level has reduced drastically, spending and the purchasing power has contracted significantly. People are in dire need of a reprieve, a breather (pun aside), a means to put food on their table and the announcement of 1,200 Dollars of Direct benefit transfer to individuals with Income below 75,00 Dollars and 500 Dollars per child is aimed at accomplishing this.

When people lose jobs, when their income reduces it creates a vicious cycle in the economy of low aggregate demand, low employment and wages. It is imperative to revive and stimulate the economy in such dire situations , the expansionary monetary and fiscal policy can be directed towards stimulating and ensuring that the economy works smoothly to meet the basic necessities of life. When the government through its expansionary fiscal policy provides money in the hands of the people, those who were in dire economic conditions because of the pandemic who were unable to pay their bills, were few weeks away from struggling to purchase the basic essentials of life and put food on their table are able to survive, pay their bills and put food on their table. When livelihood is lost it is important for the government to ensure that lives are not lost because of the loss of livelihood and that people can meet the basic necessities of life.

2. The Families First Act is directed towards directly fighting the virus by funding the testing, funding sick leave,providing funds to state via medical funds, the bill also includes more funding for SNAP and relaxation of requirements for to avail the benefits of SNAP. The programme is aimed at providing broader public health support and food security. The president has signed 8.3 Billion Dollars worth spending bill to fight the pandemic. The spending is directed towards Funding the research for vaccine and drugs to fight the virus, Money to local and state governments to fight the spread of the virus. This fiscal measure is aimed at combating the virus. Additional funds have also been allotted to hospitals and healthcare providers. The Defence Production Act was activated to ensure the production of medical equipments. The government has directed its efforts in ensuring the functioning and delivery of essential services.  The government has also adopted measures towards rationing, price controls and rules against hoarding.

3. CARE Act also encompasses measures which aims tackling the difficulties faced by companies and entities due to the loss of business and the revenue &  liquidity crunch arising out of it.

• The tax payment has been deferred. The government has provided 221 billion worth of business tax cut . These measures were undertaken in order to provide liquidity in the system.
• The government has given leeway in repayment of consumer loans, corporate loans. Student loan repayment has been suspended till September without interest in the due course.
• The government has announced a 500 Billion dollars lending programme to companies most affected by the crisis. Airline industry, public transit the sector most hit by the pandemic have been provided with a total relief package of 57 Billion Dollars to make up for the lost revenue.
• The government has extended and expanded the Unemployment insurance to include the gig and the freelance workers and extend its duration and amount.

4. Measures by Federal Reserve Bank :

• The fed has cut the interest rates by 0.5 % . Interest cuts will reduce the cost of borrowing.
• The fed is conducting a  massive and rigorous open market operation of purchasing securities, it is purchasing all the assets possible in order to infuse liquidity in the system. It is purchasing commercial papers, unsecured loans, short term loans taken by business to fund their regular operations, it has set aside 10 billion dollars to cover the loss arising from such purchases.
• It has expanded reverse repo operations adding 2 trillion dollars of liquidity in the banking system.
• It has undertaken Main Street Lending Programme worth 600 billion dollars, which is directed towards lending to the companies most affected by the pandemic.

The measures adopted by the US government and The Federal Reserve Bank is all but directed towards one thing and that is ensuring the wheels of the US economy run and do not stop function threatening the survival of its citizens. Providing liquidity through open market operation by the Fed, direct benefit transfer, deferring tax payment, expansion of unemployment insurance, expansion of food security programme, leeway in loan repayment, providing funds to corporation etc all these are directed towards providing liquidity in the system, ensuring the basic needs of the people are met and healthy entities are not perished due to the cisiris. It is the responsibility of the government and the Fed to ensure that the economy and its citizens survive through the crisis and they will have to adopt all possible measures to ensure this.

Some of the industries affected the most due to the crisis is the Travel and tourism, Retail, Transportation, Aviation, Entertainment. The industries whose activities have surged due to the pandemic are Healthcare, Pharmaceutical,