Question

Congress passed and the president signed the CARES Act in response to the economic hardships brought on by the recession. What are the main features of the CARES Act? For each element, explain how it may help to mitigate the impacts of the recession. In your explanation, you should describe how these policies would affect the AS-AD model.

Answer 1

The congress has passed the Cares Act to counter the adverse impacts of the COVID-19 induced recession. The aggregate demand is going to witness the sharpest decline over the next few months. Thus, Cares Act would help to mitigate the recessionary pressures.

Following are the features of Care act:

• it is 2 Trillion Coronavirus Aid Package.
• Public health package: $ 153 Billion
• Individual package: $ 560 Billion
• Aid to state and local government: 339 Billion
• Big Corporation: $ 500 Billion.
• Small scale business: $377 Billion.

The stimulus package of the government would help to recover the aggregate demand in the economy. Thus, again the aggregate demand would shift to right thereby pushing up the output level and employments levels.

Individual package: it ensures that each individual would be given $ 1200 to cushion against the uncertainties. thus aggregate demand will rise due to increase in family expenditure.

Small Scale Business: Special package to the small scale industries will prevent the sharp layoff process in these industries. thus employments can be maintained in these industries.

Aid to state and local government raises the spending capacities of these governments, so there will be a rise in the aggregate demand in economy.

Thus, all these elements of government expenditure suggest that aggregate demand will rise after implementation of stimulus package of congress.