Question

In: Economics

In the news we are constantly pointed to the fact that we may be faced with...

In the news we are constantly pointed to the fact that we may be faced with a global recession
in light of the effects of COVID19. Suppose after the virus has passed, we are actually in a
recession. Suppose you are working with a housing developer, for example, Gore Developers,
as an advisor. Explain to your boss with the aid of diagram(s) how this will affect the demand
for new housing units and how the company should react in this situation.

Solutions

Expert Solution

Once the COVID-19 effect is over, people will have less or no savings with them because many will loss their jobs during this lockdown and many will have to temporarily shut thei businesses. It will reduce the consumption in the because after 2-3 months of lockdown, people will have pending credit cards bills, pending EMI and much more which they have to manage from their monthly salary. It will reduce the circulation of money in the economy and eventually hit aggregate demand by reducing consumption as well as investment. It will reduce the demand for new housing units and shift the demand curve to its left from AD to AD1 which will reduce the price of housing from P to P1 and number of houses traded in the market from Y to Y1.

Gore Developers have to provide them easy financing such that even if people have less money with them can afford to buy a new one.


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