Question

Given recent events (Covid-19), how would answer the following claim, “Massive increases in fiscal stimulus, record deficits, and a rapid expansion of the Federal Reserve’s balance sheet will contribute to a sharply higher interest and inflation rates.”

Answer 1

COVID 19- covid 19 or coronavirus element is a disease, and its virus is mainly transmitted through droplets generated when an infected person coughs, sneezes, or exhales.

COVID -19 AND THE GLOBAL ECONOMY- covid 19 has affected the entire world economy. transporations have been stopped due to this the airlines, buses personal vehicles are not operating due to this the demand for crude oil has declined as low from there two decade prices. there is too much volatility in the market and no market dealing is taking place. people have been locked down in there homes due to precautionary measures.

in a leading indian newspaper the economic time on 2nd april this statement was published

"In the worst-case scenario, the global output would contract by 0.9 per cent - instead of growing by 2.5 per cent - in 2020," it said, adding that the scenario is based on demand-side shocks of different magnitudes to China, Japan, South Korea, the US and the EU, as well as an oil price decline of 50 per cent against our baseline of USD 61 per barrel.

Undoubtely the financial aid is needed to overcome the present and incoming situation . But what would be the post effect of these decisions these should be also kept in the mind.

let's have a look on the steps taken by the federal reserve-

STEPS TAKEN BY FEDERAL RESERVE-

• 1. REPO MARKET
• 2. QUANTITATIVE EASING (QE)
• 3. USAGE OF DISCOUNT WINDOW
• 4. TERM ASSET-BACKED SECURITIES LOAN FACILITY
• 5. COMMERCIAL PAPER FUNDING FACILITY
• 6. PRIMARY MARKET CORPORATE CREDIT FACILITY
• 7. ECONDARY MARKET CORPORATE CREDIT FACILITY

apart from the above decisions various other steps like relaxation in Taxation and providing basic help to ensure the availability of essential goods and it's supply will also put pressure on the government treasury.

the post effect of these decision will put a high pressure on the balance sheet of the government. the government would be in fiscal deficit and as a result if monetary expansionary policy would lead to increase the inflation which would not be easy to control.