Question

Explain the economic consequences the COVID-19 pandemic might have for central macroeconomic variables. For this analysis, use a keynesian model with an open economy and public sector.

Answer 1

THE OUTBREAK OF COVID-19 NAMED AS CORONAVIRUS HAS DISRUPED THE ECONOMIES AROUND THE WORLD. AS THE DISEASE IS SO UNCETAIN SO ARE THE CONSEQUENCES OF IT ON THE MACROECONOMIC POLICY RESPONSE.

BUT THE POSSIBLE ECONOMIC CONSEQUENCES OF THE PANDEMIC ARE LISTED BELOW:

AS THE BUSINESS NO MATTER AT WHICH SCALE THEY OPERATE GOT AFFECTED AS THE FIRMS AND HOUSEHOLDS USE MONEY ISSUES BY CENTRAL BANKS FOR ALL TRANSACTIONS. THE CENTRAL BANKS SET SHORT TERM NOMINAL INTERET RATES TO TARGET MACROECONOMICS OUTCOMES SUCH AS UNEMPLOYMENT ETC.

IN THE SHORT-RUN, UNEMPLOYMENT CAN ARISE DUE TO STRUCTURAL SUPPLY SHOCKS OR CHANGES IN THE AGGREGATE DEMAND IN THE ECONOMY.

LACK OF COMPLETE FORESIGHT IN THE FORMATION OF EXPECTATIONS, COST OF ADJUSTMENT BY THE BUSINESS FIRMS WITH PHYSICAL CAPITAL THESE COULD BE IMPACTED OVER THE INITIAL DECADES OF DEMOGRAPHIC CHANGE.

THE ADJUSTMENTS TOWARDS THE LONG RUN EQUILIBRIUM OF THE ECONOMY CAN BE SLOW AS THE GOVERNMENT DEBTS WOULD GET AFFECTED.