In: Economics
This question is based on the current Covid-19 pandemic. The pandemic will cause a recession. Provide two examples of sectors that will be particularly badly hit by this. Provide also two examples of sectors that will benefit from this. Use the business cycle model we saw in class (inflation on the Y axis and real GDP growth on the X axis) to show the effects of the pandemic on the whole economy. Think about it carefully: is there going to be any effect on aggregate demand? Why? Is there going to be any effect on aggregate supply? Why? Show the shift(s) on the graph and point out what we can expect to happen to GDP growth and inflation in the short run.
The two sectors which would be adversely affected due to covid-19 pandemic are
Examples of the sectors that will benefit from this:
Impact on aggregate demand: aggregate demand has already fallen to a historic low. As, the chief of IMF Geeta Gopinath has recently expressed the negative global growth in the coming years which would be more painful than great depression of 1930.
Reason:
The income levels of the people have decreased due to this pandemic
which will have impact on their consumption demand. Weakening
Global growth would also lead to pessimistic business expectations
driving investment demand in to downward direction. As far as
exports are concerned, due to diminished incomes levels globally,
there would be a fall in demand of luxurious components. All this
would have negative impact on aggregate demand.
Yes, it would have an impact on aggregate supply as well. Since, industrial output has fallen drastically over the past few months which has driven up the prices of some essential goods. Aggregate supply may increase in long run with the technological improvements and healing of global supply chains but in short run due to production lags, it would be very difficult to increase it given the low market demand.