Question

1. a) What does Friedman identify as the cause for the increasing levels of public debt? b) Find an article related to fiscal crisis due to the coronavirus, and then summarize the key points of the article.

Answer 1

a)According to Milton Friedman it is the government spending which creates the debt.To putin his words it is the way government spends which creates debt so debt is not the problem,rather problem is how government spends. Assuming that a country has resources equal to $100 and government spends half of it that 50 percent of the resources are only left for private individuals for consumption and investment. According to him the way government spends  is mostly wastage of resources and this leads to rising deficits.If more resources are available in private domain for example $80 out of 100 , it will lead to more consumption, demand , savings and capital formation leading to decreasing debts.So more free economy without government controls will decrease deficit and hgher resources with government will increase fiscal deficits

b) https://economictimes.indiatimes.com/news/international/business/global-economy-could-shrink-by-almost-1-in-2020-due-to-covid-19-pandemic-united-nations/articleshow/74943235.cms

Following are the summarised points based on the article above related to financial crisis of corona virus

1. The world economy is expected to shrink by 1% or even further if lock down across the nations continues.

2. Global Supply chains have been disrupted and these will take time to revive leading to severe impact on supply of goods and services.

3.Companies have started laying of their workers and unemployment levels are going to rise. Falling levels of aggregate demand will lead to demand shocks acroos the world economy

4. Global growth rate is expected to fall betewwn 1.2 to 2.5 % depeding upon how governments spend to boost economy.

5.Falling gemand for imports by developed countries will make economic situation more worse for developing economies.

6.Tourism industry is going to be worst hit with millions unemplyed if this pandemic continues.

7.Security markeys have crashed by over 25 %.

Overall scenario is depressing from Economic point of view , appropriate measure should be taken to control this pandemic world wide.