Question

In: Accounting

How this would change interest rate, investment, AD, GDP, Unemployment and price level?


Assume COVID-19 causes people to keep more cash in checking accounts rather than financial markets. How this would change interest rate, investment, AD, GDP, Unemployment and price level?


Solutions

Expert Solution

COVID-19 causes people to keep more cash in checking account rather than financial markets has the following impacts:-

According to RBI governor repo rate cut of 0.75% from 5.15% to 4.40% is part of measures taken to reduce impact of COVID-19. The reverse repo rate was also cut by 0.90%.

Due to total lockdown because of worldwide problem COVID-19, unemployment went up to 24%. This was possibly a result of decrease in demand as well as the disruption of work force faced by companies.

GDP at constant prices of 2020-21 is Rs 26.90 lakh crore as against Rs 35.35 lakh crore of 2019-20. It shows a contraction of 23.9% as compared to 5.2% growth in 2019-20.

COVID-19 has a significant deflationary impact because demand specially for non-essential or discretionary goods and services will go down.

When COVID-19 settles down investors will turn their attention to their portfolios and will hope that their investment professionals were diligently working to safeguard their asset during these turbulent times.

COVID-19 has had clear supply effects. The effect on demand are more difficult to gauge but it is critical from an economic policy point of view because we have more confidence about how to deal with demand than supply deficiencies.

ekkarill92 answered 2 years ago
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