Question

What is the impact of COVID-19 on present and future resource allocation within the United States.

Answer 1

Case Specifics

The Covid 19 Pandemic has turned out to be one of the worst economic nightmares for companies as well as for governments across the globe, as establishments remain shut and the aggregate demand for goods and services has been falling sharply.

This fall has resulted in reduced production levels across all major countries and people are getting fired as producers are trying to control their costs of production and limit their expenditure to retain some money from business. The government on its part has increased its expenditure on essential services such as health care and is restricting other administrative expenses while is granting maximum tax benefits to people so that their income remains stable and aggregate or total demand does not fall and impact the overall production and gross domestic product of the country any further.

Now when we come to present resource allocation, we see that producers and consumers both are consuming lesser and producing lesser amounts of goods and services and are saving more than they ever used to. This has resulted in a situation wherein the allocation on spending has decreased considerably. The government on its part has increased the expenditure on critical items as explained above, and on the other hand is reducing the government budget as tax collections remain low.

This prompts us to believe that most people in the economy would reduce present allocation to consumption and production and in the long run i.e. the future will increase their savings or reserve capital to accommodate for loss of revenue due to such critical pandemics respectively.

The government on its part will also create reserves for itself which are higher than previous levels so as to accommodate for expenses during such times wherein the economy cannot be regulated by changing the forces of demand and supply alone and revenues in terms of tax collections will remain extremely low.

Conclusion: -

We can conclude by saying that, the Corona Virus pandemic has altered resource allocation in a way that due to uncertainty of jobs and of profits, the current allocation is focussed towards reducing expenditure and promoting savings to be able to meet with these externalities. The government on its part is also restricting expenditure of non-critical areas.

In the future as well resource allocation would focus towards having additional money available with us, so that subsequent governments, consumers and producers can manage themselves in a manner that these pandemics or any other contingency can be handled in the best possible way and manner.

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