Question

The COVID virus has had an impact on all facets of our economy. Please discuss the impact it has had on each of the variables below over the net 12 months. Explain if the will increase, decrease, or remain unchanged and the reasoning behind your decision. You do not have to cite the textbook, but all other sources should be cited according to APA format.

1.G (government) 2.Exports 3. Government budget (T-G) 4.The value of our dollar in comparison to the US dollar. 5.The supply of money (M1) 6. The prime interest rate

Answer 1

if we understand the influence of COVID on the circular flow we can analyze the impact-.

Due to the virus, all the economies are shut down and some have drastically reduced export and import. Countries like the US and India are still engaging in trade of pharmaceutical items. The developing countries mostly run on a budget deficit hence the authorities are finding it difficult to meet or cope with the necessary payouts hence in India the government has started the initiative of PM care fund in which people contribute so as to help meet the required payout for health, food, and security. The government officials have also been issued a pay cut as the funds are transferred into COVID relief.

Going into the variables

1. Government sources of revenue have all been shut but the government has to continue making payout to households and firms with respect to subsidies and relief. Hence it will operate find deficit. Through the phased lockout the government will induce the working of the different industries and different sectors which will very slowly bring the economy into the track as economies are undergoing near 4000 cr loss daily.

2. Exports have been hampered drastically again a source of revenue being hampered. The course over the next 12 months will depend on the situation of COVID as China is having another COVID scare whereas some countries have only started being the hotspots hence until the containment it won't be possible to open the doors for export as that requires a huge number of workers and also contact which is being reduced.

3. Government budget as stated will be running on a deficit for developing countries hence finding different sources for revenue as the health facilities are being highly subsidized, migrants workers are being provided with food and shelter. These seem like small amounts but feed onto a lot of the relief fund entitled to COVID. Taxes have also been hampered as the households and firms are running on financial distress due to pay cuts and layoffs .Hence this will improve only after the sectors of production is opened as that will induce distribution, consumption Anand investment .

4.$has been predominantly affected as many have applied for unemployment benefits and other subsidies. Unlike the crisis of 2008 which slowed growth for a few years, this will linger for a much longer time as has affected the stock market has fallen to a 3 year low. Hence the value of the currency to currency will depend on the prevalent countries exchange rate to US $

5. Money supply if one observes the circular flow one will realize the importance of each sector that if households and firms are not brought into a track then there is no scope for saving and investment which will further deteriorate the production, consumption of government and foreign sector. Hence for money supply one needs to target households and firms. This will normalize based on the planned phasing out of the lockdown .

6.Interst rate is being reduced as households and firms are under financial distress . Again interest rate can only be improved after the economy is brought into the normal functioning of the circular flow.

All the changes for the next 12 months will depend on the economies recovery stage in the next 1 to 2 months.