Question

In the face of the COVID-19 pandemic, the government is advising the households to stock up essential goods. What if there is panic buying? Explain in detail the behaviour of the money market. (12.5 Marks)

Answer 1

Answer)

Amidst Covid pandemic outbreak , government is advising the households to stock up the essential goods so that people don't face problems later. But its repurcussions could be troublesome if it leads to panic buying among its customers-

● This will lead to increase in demand of essential goods in the market.

● Due to increase in demand, there is great possibility of shortage of goods in short span. Hence, price of essential goods will rise exponentually.

● Adding to the mysery, shortage of goods from the supplier side will further create trouble.

● Consequently, there are confirmed chances of rising inflation, due to rise in demand.

● And if inflation will rise, this will create huge problem for marginalised population to purchase products. Poverty is already their enemy.

● Due to shortage in supply, government will be compelled to import from other countries which will impact the Fiscal Deficit and Current Account Deficit respectively.

● Also, the forex reserves and rupee value will decline due to rising imports.

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