Question

Covid-19 global economic pandemic has negatively affected economies as a whole at the global, national and regional levels. The novel effects of the fluidity of Covid-19 appears to continue to have negative impacts on the macro business model as the global recession seems to be inevitable. You are working as a macroeconomist in economic affairs in your local country, and you are tasked with analyzing the impact of Covid-19 on the economy and you are required to prepare notes on what specific government policies can be implemented as a stimulus package to jump-start the economy savings and investment market. The team meeting will be held in 3 days from the date of the assignment and because of limitation of time the Chief economist has given you the following guidelines: (a) You are required to identify four (4) key macroeconomic issues from the impact of Covid-19, (b) For each issue in (a) explain in detail what specific government policy would you implement (c) What would be the rationale for your choice of policy and (d) Your answer should be accompanied by relevant diagrams where possible.

Answer 1

The First Macroeconomic issue is the Recession which has been phased by the whole nation and by every economy.

The Second issue is about the demand and supply of the essential commodities which government tried to supply to everybody but with a continous increase in demand it resulted in increase in prices.

The Third issue is about the effect on shares of lower expected growth and greater uncertainty about future growth. The increase in stock market uncertainty was, from about 15 on 20 February to about 40 on 28 February.

The Fourth issue was about the Credit supply which we can consider about of Italy. As credit default swaps of large Italian companies. The mechanism that could lead to credit problems could be the higher default risk of firms borrowing from banks, which would impair the flow of bank credit.

Policies:-

India is working on a set of policy measures to combat the economic impact of the coronavirus and that may include some cash transfers to workers in the informal sector

Fiscal Policies are being implemented for the time of recession, unemployment, and for AD and AS which includes Monetary Policy and Bank Regulation or Expansionary Fiscal Policy in which the government increases their expenditure as well as Contractionary Fiscal Policy. Expansionary fiscal policy increases the level of aggregate demand, through increases in government spending or through reductions in taxes. Expansionary fiscal policy is appropriate when an economy is in recession and producing below its potential GDP. Contractionary fiscal policy decreases the level of aggregate demand, either through cuts in government spending or increases in taxes. Contractionary fiscal policy is appropriate when an economy is producing above its potential GDP.

Based on the theoretical and on logic bases if we need to decide the rationale then the simultaneous policies that is contractionary as well as expansionary has to be followed.