Question

explain in detail how monetary policy, fiscal policy and international trade has changed in the wake of the pandemic. Apply these concepts to the current economic situation caused by COVID-19.

Answer 1

Pandemic situation is same a recession period. There is a huge fall can be seen in the supply side of the economy and this decrease the business in service sectors. The shortage in pharmaceuticals in several regions increases the panic level among the people. There is a huge fall in the stock market also. At the same time, there is high monetary impact over the travel and trade of the industry. All over the world, different government introduced several programmes regarding the recovery from the current economic situation. There is high fall in the business activities in China. The shortage of food supplies and other necessary goods can be seen in different parts of the world. From the statics by the International Labour organisation, about 6.7 percent of job loss can be seen in the beginning of April 2020.
Monetary policy tools are the expansion of money supply and reduction of the fund rates and other reserve rates in the banks. This will help to ensure a recovery from the current situation. If the money supply rise by the monetary authority will help the people to meet their needs and consumption. The reduction in bank reserves will increase the lending rates and this help to afford the people to take loans easily from the banks to meet their needs. In overall economy, this measure will helps to increase the low level economic situation of every economy. The rising money supply will reduce the interest rates in the economy and it will induce the level of investment and increase the development in the production sector. Under the pandemic situation, the reduction in the interest rates will induce the small investors to invest in different sectors. These small investments will increase the level of production and this will stimulate the supply chain also.
Fiscal policy expansions were mainly implemented by the government itself. Cutting of tax rates was the most important instrument of fiscal policy. The expansion of government spending was not possible at this situation. So most of the fiscal authorities use this type of tax cutting measures to induce the consumption. This will increase the level of output and also leads to low level economic growth. The tax cutting will increase the disposable income and rise the spending for necessary goods.
In international trade, the rising money supply will reduce the value of currency and reduce the exchange rate also. This will help the export of the countries. At this situation the trading is not possible. So firms focused on online shopping and virtual transactions. This will expand the production in virtual world. This type of production and distribution methods will try to avoid the spreading of the virus among the community. This will helps the banks to interact in the international market. Thus there is a development in the online platform can be acquired through the pandemic.