The Cares act provided cash payments to the majority of households in the U.S. Using AD-AS...

The Cares act provided cash payments to the majority of households in the U.S. Using AD-AS model, explain how it would affect the U.S. economy. What would determine the effectiveness of this policy. Does it matter if the economy is closed or open?

Expert Solution

The Cares Act passed to ensure economic security to the workers regarding the corona virus. It is a spending package of $2 trillion. This Act is relief for the workers who lost work due to the pandemic. Restoration of aggregate demand is the main objective of this Act. In the supply side there is a huge fiscal deficit and debt created. One of the measure is to strengthen the output gap. The supply side can be maintained through this. Loans were allocated to the small business to maintain the payroll due to the crisis. This maintains the connection between small business employers and workers. Changes regarding the student loan, work study programme and related forms of student aid enhance the student community from the crisis. Aggregate supply increases through improving the conditions of major industry total level of GDP through providing efficient policies. Due to the pandemic the aggregate demand falls down. Ensuring efficient demand policies to the consumers will enhance this.

Rahul Sunny answered 2 years ago

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