Question

We are in the midst of a global pandemic that has caused a stock market crash and has the potential to cause a massive macroeconomic crisis such as another Depression. What monetary and fiscal policies do you recommend to help this situation caused by COVID-19. Your answer should be 2-3 paragraphs long.

Answer 1

COVID-19 pandemic has shaken the economy. Due to coronavirus pandemic small industries and businesses has impacted which has slowed down the economy. With situations involving huge numbers of people being cancelled and also increasingly avoidance of the hotels, restaurants, travel, and with the rapid descent of stock market, recession seems extremely likely. To help this situation caused due to the COVID-19, the economy needs a stimulus package which the combination forms of a monetary stimulus and fiscal stimulus. A stimulus package refers to a package by a government for the economic measures for stimulating a floundering economy. The main goal of the stimulus package is to reinvigorate the nation and reverse or prevent a recession by boosting spending and employment.

It is vital that policymakers must rapidly act to make strong fiscal measures to lessen the damage, both to the overall U.S. economy and millions of Americans. The response of fiscal policy must be both quick-acting and aggressive because it can act much more quickly by getting money into the hands of people’s within weeks or months. A broad fiscal policy can ensure continuous and broad access to safety-net programs, provide income support for the households, giving the incentives for employers for avoiding the layoffs, provide loans to small businesses, and giving liquidity cushions to firms and households for stimulating the economy.

Monetary policy can involve a reduction in the rates of interest on the discount window along quantitative easing (QE) or asset purchases. The capital requirements for banks are lowered. The banks are also encouraged by Fed for using the liquidity and capital buffers to lend, which are funds reserved to face the hard times. We need an immediate coordination between fiscal and monetary policy.