Question

How would the coronavirus affect the U.S. economy? In terms of aggreate demand (or spending) for Februray and onwards?

Answer 1

Not only will the virus affect supply, but some sectors of the U.S. economy may also experience demand declines— and large revenue reductions— because of overall economic impacts. Two distinct effects are to be considered. First, people will buy less of certain goods and services as they fear potential exposure to the virus. They may be less inclined to travel or go out to eat, for example. The result is that hotels and air travel could feel a real pinch. There already appears to be a reduced demand for the food and beverage industries.

As Americans are increasingly uncomfortable with the spread of the virus in the country, it is predictable that some goods will be further reduced and their emergency savings instead increased.

Second, when companies are forced to close, workers are likely to receive less money than they would otherwise have expected and will receive no pay in some cases. As a result, those workers will have to spend less, again reducing overall demand. A drop in demand following a supply shock is a one-two punch that will contract further economic activity, although the size of those effects is largely unknown