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In: Economics

The US economy has been experiencing an economic downturn since March. Based on the second quarter...

The US economy has been experiencing an economic downturn since March. Based on the second quarter estimates released by the Bureau of Economic Research, lockdown orders across the country issued in March led to rapid shifts in business behavior and consumer spending, causing a 31.7 percent annual rate decline in the Gross Domestic Product (GDP). The full socioeconomic effects of the COVID-19 pandemic will take economists and public health experts several years to quantify. At this time, what we know is that the COVID-19 recession than past recessions in many ways. Briefly discuss three features that make the COVID-19 recession unusual when compared to past economic downturns.

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Expert Solution

The three features that make the covid 19 recession different from the past recessions are:

a.) Cause of the recession: 1973-75 and 1981-82 recessions were triggered by large oil shocks because the economy is heavily dependent on oil imports. 2001 recession due to rapid technological advancements (dot com recession) and the 2008 recession was owing to overleveraged financial institutions.

Covid - 19 recession is due to the pandemic resulting into a complete non essential services lockdown. This led to supply side shock causing a massive demand shortfall. People virtually locked up in their homes, demand fell and the unemployment grew. Private investments stopped and savings took pace. In earlier recessions, people were not locked in their homes causing such turmoil.

b.) Since this disease is very transmittive and virulent, factories and service industry is working at reduced capacity tto follow social distancing norms. Increase in output is not a feasibility at such a diminished workforce. Hotels, restaurants, recreation parks are all seeing very little footfall. This will continue as such unless immunity is developed into the masses through vaccination. Economy is dependent completely on the course this pandemic takes. Measures to tackle this pandemic haven't bore very rewarding fruits yet.

c.) Economy is constrained by the speculation around uncertainty of the viral incidence and persistence. Market players are holding back investments since no one is sure about its track in the coming months. Market is now very much linked to the human sentiment than ever before in the past. Only the digital sector which can manage work from home saved the face since the issue is avoiding contact.   

Rahul Sunny answered 1 year ago
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