Question

Lawmakers recently approved the Coronavirus Aid, Relief, and Economic Security (CARES) Act designed to address the public health and economic crisis brought on by the novel coronavirus (COVID-19) pandemic. The CARES Act appropriates roughly $2.2 trillion of spending, tax breaks, loans, and other resources over the next decade.  CBO estimates it would add $1.7 trillion to the deficit over that period. Assuming that there is no demand shock, discuss what effects you would expect the CARES Act to have on consumption, national savings, real interest rate, and investment.

Answer 1

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Question:

Answer:

Introduction:

As per the question, lawmakers recently approved the Coronavirus Aid, Relief, and Economic Security (CARES) Act designed to address the public health and economic crisis brought on by the novel coronavirus (COVID-19) pandemic. The CARES Act appropriates roughly $2.2 trillion of spending, tax breaks, loans, and other resources over the next decade. We all know about the COVID-19 crisis and how its affect the economy, social activity and politics globally. Most of the country is facing this pandemic situation. all the major economic, political and social activities are affected badly. People are staying at home. GDP, consumer confidence, employment growth, income level, consumption, investment all the major economic variables has fallen down sharply. People are losing their jobs or facing the pay cut. Millions of people are Corona positives and thousands of people has lost their lives. USA is the most effective nation globally and facing a big pandemic crisis.

Now come on the question:

In this pandemic situation lawmakers recently approved the Coronavirus Aid, Relief, and Economic Security (CARES) Act designed to address the public health and economic crisis brought on by the novel coronavirus (COVID-19) pandemic and provided the economic support to the economy/nation of  roughly $2.2 trillion of spending, tax breaks, loans, and other resources over the next decade. This is the demand of current situation otherwise the nation can fall into greatest recession and creat a worst situation for the national economic and public health.

We have discussed above about the COVID-19 crisis and its impact on economy, society and politics. The public health and economy both ate the most important things. When the The CARES Act provide a help of roughly $2.2 trillion of spending, tax breaks, loans, and other resources over the next decade then it will positively affect the consumption, national savings, real interest rate, and investment.

Consumption:

When the The CARES Act provide a help of roughly $2.2 trillion of spending, tax breaks, loans, and other resources then it will increase the income level that will increased the consumption. People will spend more and buy more goods and services.

National savings:

National saving is the sum of private and public saving.and equal to the national investment. When the The CARES Act provide a help of roughly $2.2 trillion of spending, tax breaks, loans, and other resources then it it would add $1.7 trillion to the deficit over that period. When the government runs a budget deficit, public savings are negative that decrease the supply of loanable fund that increase the interest rate that further negatively affect the consumption and investment.

Real interest rate:

Real interest rate i the inflation adjusted interest rate. When inflation increase it decrease. When the The CARES Act provide a help of roughly $2.2 trillion of spending, tax breaks, loans, and other resources then it will increase the income level that will increased the consumption. People will spend more and buy more goods and services. Higher consumption means higher aggregate demand and higher price level/inflation. So it will decreased the real interest rate.

Investment:

Investment is affected by GDP growth rate, confidence level of investor, factor cost, inflation etc.  When the The CARES Act provide a help of roughly $2.2 trillion of spending, tax breaks, loans, and other resources then a higher consumption and GDP growth, increasing income level will boot the investment but in long run lower national income, fear of inflation can negatively affect the investment level. So, in the long run it will be derive by the interest rate, national income, consumption level and inflation. If these things will be favorable then investment will increase and in unfavorable condition if will be affected negatively.

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