Question

1. Recently the United States has renegotiated several trade deals before the outbreak of the Coronavirus. Then, as countries have isolated themselves, international trade has suffered. Analyze the repercussions from the virus with policy papers or books from economic think tanks. Identify possible unintended consequences using supply-and-demand graphs, comparative advantage determining trades, and elasticity.

Answer 1

The corona virus pandemic has shaken the U.S. economy. With restaurants, stores, and more being closed, and most other the people forced to work from home, the nation is gearing up for a depression or recession that is hasn't experienced in almost a century. The U.S. Senate on March 26, 2020 voted for an approval of a stimulus bill amounting $2 trillion for providing the relief to individuals, families, small industries and businesses impacted due to the slowdown of an economy caused by the coronavirus pandemic.
The spread of Covid-19 tends to cause a negative supply shock to the global economy, by forcing industries to shut down and disrupting the international supply chains. Moreover the outbreak of Covid-19 causes a demand-driven slump, widening the supply-demand doom loop. "Investment-savings" (IS) and "Liquidity preference-money supply" (LM) also termed as IS-LM model is a macroeconomic model by Keynesian which depicts the market for economic items (IS) interacts with the market of loanable funds (LM) or money market.
According to the Keynesian tradition, the output and employment are determined by aggregate demand. In turn, aggregate demand would be depending on positive growth in production because the faster growth of productivity motivates the expectations of agents’ on the future income, encouraging them to spend more in the present. It is illustrated by the AD curve in Graph-1 giving a rise to positive variables between growth of productivity (g) and employment (l). In the enclosed graph initial equilibrium at point A and due to coronavirus the growth of productivity moves from g to g'; thus causing the equilibrium to move at point B. It causes a reduction in demand and the involuntary unemployment as the spread of coronavirus epidemic causes a negative impact on expectations of agents’ on the future growth of productivity, and induce a demand-driven recession. Now if the monetary stimulus is made through the strong government and individual's multiple income stream there will be a rightward shift of the AD curve towards the AD'.