Question

we are experiencing a period of deep problems globally . please explain what is happening using the theories

Answer 1

Answer - Due to the global pandemic spread all across the world , the world economy is going into the great recession. The business cycle is almost in its worst stage. In order to prevent the virus from spreading , the production and other activities have been shut down , with workforce sitting at home in the lockdown phase. Due to this , the level of AD and the level of AS both have declined. There is lack of income due to lack of jobs. The lack of investment has adversely affected the supply. Hence due to this decrease in AD and AS , the economies are entering into the phase of recession with their GDP growths going into negative.

In order to cover the economy with this problem , the fiscal and monetary policies are being framed for the economy. The keysians support the expansionary fiscal policy at this time , whereas the monetarists support the expansionary monetary policies. The government are increasing their spendings , banks are lowering down their interest rates and reserves in order to lend more. All this is being done to take out the economy from the recessionary phase and boost the demand and supply .