Question

1.What are the fiscal policy measures that U.S. Govt. has taken during the COVID-19 Pandemic?

2.Using an aggregate supply/demand framework, explain the effect of these actions on U.S. economic output and price levels. Include a well-labeled figure.

Answer 1

1.U.S. government passed three relief packages totally nearly $2.8 trillion. First relief packages , Coronavirus Preparedness and Response Supplemental Appropriations Act 2020. It allocated $8.3billion to fund research for a vaccine,give money to state and local governments to fight the spread of virus and allocate money to help with efforts to stop the virus's spread overseas. The second relief package. the families First Coronavirus Response Act allocated $3.4 billion in relief and included providing money for families who rely on free school lunches , mandate companies with fewer than 500 employees provide paid sick leave ,and providing a tax credit to help employers , nearly $1billion in additional unemployment insurance money for states as well as loans to sates to fund unemployment insurance and funding and cost waivers to make Covid19 testing free for all. The third and the largest relief package called Coronavirus Aid ,Relief and Economic Security Act which provides $2.3 trillion for one time direct cash payment ,expansion of unemployment benefits , mortgage forbearance for federally -backed mortgages for 180 days .Another supplementary measure the Paycheck Protection program Flexibility Act of 2020 also provided various relief packages During Covid19 , economy is underemployment equilibrium where aggregate demand curve ,long run aggregate supply curve and short run aggregate supply curve intersects at point E at P level of price level and Y level of output. The fiscal policy measure introduced by U.S.government increased the income level of individuals . There by it will stimulate the consumption and investment in the economy. It will increase the aggregate demand of good and services and shift AD curve rightward to AD1 . It will increase the price level into P1 Increase in investment drives the production of economy . Thereby it increases the aggregate supply of good and services and shift LRAS curve rightward as LRAS1 . It will increase the output level from Y to Y1