Question

1. The US economy has shrunk 5% due to the impact of the Covid19 pandemic. President Trump has passed a piece of legislation that allows for 5 Trillion dollars to be put back into the economy, through near-zero interest loans for business, and payments of nearly $2,000 for the population. How do you think people will use their $2,000 payment, and why. How do you think industry will use their much larger payments, and why. Comment on short term, and long term application.
2. The government of Thailand has issued a decree to pay a stimulus check to every person who lost a job due to the COVID-19 crisis (and qualified under other criteria). What was the economic consideration under such policy? What would be the main channel for the economic effect? What would the effect be on consumption and saving if instead of such policy the government would have cut taxes?

Answer 1

People in the US will use their $2000 payment received by the government to meet their basic necessities and they will save the rest. This will be done by them to save themselves from any further uncertainties for the short run. In the long run, people might invest their savings for extra earnings.

The industries will use their large payments to meet their fixed costs in the business for short run and will spend on strategies of production that will help them survive in the business during these tough times for long run.

The major consideration of policy of stimulus check is to boost the economy and help it survive by increasing rate of consumption. The major channel of this consideration would be paying the taxpayers of the country through direct deposits so that they can spend money and help the economy to grow.

If the government would have cut taxes instead of this stimulus check, then the rate of consumption and saving would not have increased so much like it has increased by getting direct deposits.