Question

impact of covid 19 on th equilibrium interest rate.answers should be within 1500-2000 words.

economics student

Answer 1

The COVID-19 is the virus which has been originated from the China has been declared as the pandemic. The virus belong to the larger family of corona viruses. This virus has been spreading fast through person to person and the process is currently going on to find a vaccine on this virus. The China is the manufacturing hub of the world and current situation of globalization means there are a lot of people who travel around the world for recreational or business purpose. Further, Chinese government didn't make all the information public regarding the outbreak of newer virus and that has resulted in its spread almost throughout the world.

As it has no vaccine yet so physical lockdown of the cities which will not allow people to people interaction is the only precautionary measure available. China has imposed such lockdown in the city of Wuhan where the virus has been originated. This means there won't be any factory or shops running. This has affected the economic activity and earnings of the people. The most affected are daily wage earners and overall effect on the economy is that there is suppressed demand as well as supply. The aggregate demand is dampened by this pandemic but also the supply.

The economy in almost each country is in the need of revival and that means the consumption of aggregate demand must take off. There is a possibility of demand revival after the end of lockdown period but the income factor is still looming large. The policymakers will have to ensure that people have enough disposable income and there is enough liquidity in the market at lower borrowing cost. The interest rates will have to fall to ensure a higher credit off take by the economic agents such as firms and consumers for faster recovery.