Question

Write a short essay based on current states of the US economy. Use one paragraph describing Fed's action, use one paragraph describing fiscal policy, and use at least one additional paragraph commenting on the potential effects of these policies using AS/AD framework.

Answer 1

CURRENT STATUS OF US ECONOMY:

1} FED'S ACTION

The fed has announce a coordinated central bank action to to enhance the provision of the liquidity of the US dollar. And also it encouraged the banks to use the Federal reserve's discount window, which will provide with small loans to banks in order to ensure the stability and liquidity of the banking systems. And also the Federal reserve's took action to support the US economy and allow the banks to continue their lendings to households and small business which were seriously effected. And also the Federal Reserve board announce the establishment of a Primary Dealer Credit Facility{ PCDF } to support the credit needs of households and business. And also to provide the credit needs of the households and business by MMLF { Money Market Mutual Fund Liquidity Facility }. And the transfers from the savings deposit was limited to a six in number a month was changed to number of convenient transfer as per the wants. These are all the important actions by the Fed.

2} FISCAL POLICY

As a initial response to the condition the policy makers has enacted a fund of $8.3 billion as an emergency funding for the public health care facilities and for the research of the vaccine for Corona virus. And also the Corona virus Response Act was initiated to provide help and immediate economic support to them. And by this the unemployment insurance benefit has increased and which in term was an important step. And also the spending or funding on the federal Medicaid and on the food security has increased. And the corona virus testing has made under a free of service under the government health programs. They also initiated a direct payment to the tax payers to provide them with the economic support and lot of incentives are provided in tax for the small business. And also some of the employees are provided with the medical leaves or sick leaves. The financial aid to the most devastated fields and the financial support to the small business are also important actions.

3} AS AD FRAMEWORK

The effects of the COVID-19 cased by quarantine, interruption is supply chains, factories remain closed and the movement of people are completely restricted. In such a conditions it will lead to a condition that the demand will be raised than the supply. The aggregate demand will dominate over the aggregate supply and which will eventually resolutes in the increase in the price of goods and services.

And also due to the social distancing and quarantine the people will postpone their demands and it will result in the collapse of the aggregate demand. And by the interruption in supply chain and the cease in the production, it finally will negatively impact the trade. These all are the important changes in the Aggregate demand and aggregate supply.