Question

If you were the U.S. government policy maker, what types of fiscal policy measures you will introduce to deal with the coronavirus pandemic and the coronavirus recession? What are the impacts of these fiscal policies on the U.S. economy in the short-run and long-run?

Fiscal policy is the government’s policy with respect to spending and taxation.

Answer 1

As the policy maker, I would adopt the following fiscal measures:

- Increased government spending in Micro, Small and Medium Enterprises and Non-Banking Financial Companies: these corporations play a crucial role in any economy and are hardly hit by the economic slowdown.

- Reduction in the minimum support prices for farmers in the agricultural sector

- More spending on creating infrastructure in manufacturing and energy sector: this initiative will create employment opportunities and can help in reducing the unemployment rate.

- More spending on Health Infrastructure: During the pandemic time, a country needs sound Health Infrastructure and services. More spending in this sector would help in quickly detecting the virus impacted people and can give better health services.

All the above measures can help the US economy to come out of the pandemic with a far less damage. Unemployment rates are quite alarming in US and quick government intervention like increased spending in infrastructure is needed to bring the rate down.

In the short run, the effect of these measures are difficult to realize. However, in the long run, surely the Negative GDP gap will be closed and the economy will again come back to the full employment level.