Economics.
Introduction.
Corona virus disease is an infectious disease that originated in Wuhan, China. The new diseases is a newly discovered form of coronavirus and has a very high rate of infection. It spreads through contact of saliva or discharge from the nose when a person that is infected sneezes or coughs (Zhu et al., 2020). It is a respiratory illness and some of its symptoms are sneezing, coughing and in some cases leads to pneumonia. Though most people experience mild symptoms to moderate symptoms the disease is highly dangerous to the elderly or people with serious ailments; this is because this type of people have a weak immune system hence the disease is able to thrive in such an environment (Lai et al., 2019, pg105924). Due to the laxity of the Chinese government in trying to control its spread as well as confirming its awareness about the virus the disease has managed to spread its roots all over the world in a very short period. This has led to a huge loss in the world all over in terms of the economy being affected on a grand scale that has never been experienced before as well as the huge loss of lives. In as much as the Chinese government has stated that it has been able to contain the virus in their nation, this is not the case to other countries. Countries such as the United states of America, Spain, United Kingdom, Italy and Russia that are considered to be developed nations have been the hardest hit with the pandemic. As of May,13, 2020 there have been over four million and three hundred thousand confirmed cases of infections globally and out of this infected persons, two hundred and ninety thousand people have succumbed to the disease. Due to the high infection rate that the virus is capable of countries have had to impose tough measures in order to reduce the rate of the virus.
Effects on the economy.
Due to this pandemic, countries have had to enforce strict policies such as: enforcing social distancing where by people in public and at work are required to be over one meter apart, curfews where people are required to be at home at a specific time e.g. by 6pm, lockdown of states where people are restricted into moving in and out of states so as to contain the areas that are highly spread, compulsory use of protective masks when in public as well as grounding planes from going out of the country so as to prevent people infected from leaving and entering the country. As much as these measures are tough on the people they are effective and efficient in ensuring that the virus rate of infection is controlled and contained. In putting to effect such measures the economies of a lot of countries have faced a huge blow on a scale that has not been experienced for a long while (Fernandes, 2020). For example, in countries such as Spain and United states of America where they have had to put people on forced self-isolation for weeks so as to ensure the virus spread is contained, companies have had to shut down operations as well. This effect has led to companies to operate on losses on end and have had to lay off workers to remain afloat. This measures have also affected industries such as tourism and hospitality as traveling has been affected greatly. High rise of unemployment, businesses crashing, people resisting on paying rent are just but a few problems that the government has had to face. To manage this problem, the government has had to use fiscal and monetary policies to their advantage in order to salvage the economies from completely crashing.
Fiscal policies.
According to Hagedorn (2020), fiscal policies is an effective tool that is used by the government to determine the way in which the central government will earn its money through means such as taxation as well as how the government will be able to spend its money. Fiscal policy is part of the macroeconomics tool that helps in the solve problems in the economy such as unemployment, inflation, economic growth, trade and income distribution. Through the fiscal policy, the government is able to change the levels of taxation as well as spending so as to directly influence the economy’s response (Rukiah et al., 2020, pg347-367). The fiscal policy tools are hugely swayed by politics in a country and if not well analyzed it can lead to poor decisions being imposed since they require to be implemented based on information gotten from trusted data and economic theory.
Fiscal policies have been highly effective during this pandemic for many countries. This is because it has helped reduce the economic strain caused by job losses and bankruptcies. In measures to control the economy fiscal policy has been divided into three categories (Shwarzer and Daniella, 2020). The first category is the immediate fiscal impulse which is meant to lead to deterioration of the budget balance without facing any direct compensation in the future. The tools adopted include additional government spending (maintaining employment rate, medical resources) and foregone revenues such as cancelling certain taxes. Countries all over the world have had to adopt these policies so as to save the economy. For example, the United Kingdom’s government in an effort to retain people’s job and reduce the rate of unemployment has injected over one hundred billion pounds in the economy. This money is meant to be distributed to the small business grant schemes, hospitality, retail, leisure and nursery businesses, additional funding to the NHS, the self-employed income support scheme, welfare measures such as increasing the standard allowance of universal credit, extra funding to the main frontline charities across the United Kingdom. It has also declared that there will be no cost estimates for exemptions from import duties relating to medical products as well as no cost estimates for the suspension of rail franchise agreements. The second category is deferrals where the government decides on differing certain payments such as taxes. This helps improve people’s liquidity positions and as much as it deteriorates the budget balance in the year 2020 it is bound to improve in the future. In providing cushion to the inevitable loan deferrals the United Kingdom government has injected over three hundred billion British pounds. This amount of money will help in the loan scheme that has disrupted businesses during the corona virus pandemic. The last category is liquidity provisions. This category helps improve the liquidity position in the private sector. In salvaging the VAT payments deferred, the government has injected thirty billion british pounds.
Fiscal policy as a tool of macroeconomics has helped greatly during this pandemic. Due to the low demand of products and services during this period, the measures imposed has helped a lot of people retain their jobs even after companies where forced to reduce the rate of production. As the country heals from this pandemic the economy is also assured to heal as well as the measures have greatly helped reduce the economy deterioration (Hainbach and Redeker, 2020).
Monetary policies.
According to Jaroncinski and Karadi (2020, pg1-43), monetary policies refers to the actions put in place by the central bank of a country in order to achieve the objectives of the macroeconomic policy. Macroeconomics in this pandemic is highly crucial in analysis as it mainly deals with the performance, behavior and structure of the whole economy. In factors such as inflation the central bank in an effort to prevent this from occurring is allowed to enact restrictive monetary policies that will tighten the money supply in the country. This will reduce the total amount of money in circulation and also reduce the rate at which the amount of new money enters the system. Monetary policies have over the years been considered reliable in keeping in check the economic growth as well as stimulating economies to come out of recessions.
During this period where the world is facing this pandemic the government measures to mitigate the virus has had a huge toll on the economies. It is by this reason that monetary policy is considered highly important in order to save the economy. During this pandemic if caution is not placed on the economy it might end up diving into a recession. A recession is basically the period in which the economy experiences a steep decline during which the industry and trade activities involves are dramatically reduced (Huang and Startz, 2020, pg507-514). This is generally recognized by a drop in the Gross Domestic Product (GDP) within two successive quarters.
To prevent this from happening the central banks of countries such as United Kingdom have had to enable customers to request banks and other financial institutions to allow their deferment of loans and penalties that they pay in installments. The central bank also stated that the period required in payment of loans needs to be extended as the economy fall has greatly affected business operations. Another measure aimed at promoting internet banking and reducing the amount of people seeking services in bank premises, is the complete waiver of commissions for the transfers conducted in local currencies.
Bank lending has also been greatly encouraged by the central bank so as to ensure that the businesses that are going through losses in this period are able to stay afloat. By preventing companies from falling out of business the government through the central bank is able to maintain the employment rates within the country (Schotanus, 2020). Countries such as Germany through the central bank has had to provide additional asset purchases exceeding 100 billion British pounds. In United Kingdom the central bank has also had to reduce the bank rate to 0.1 percent; this is a 65 basis point on the bank rate. Another measure that has helped the government is the holding of non-financial corporate bonds and UK government bond by 200 billion British pounds. The central bank in an effort to reinforce the rate cut has introduced the new Term Funding scheme. It has also agreed to put into effect the contingent Term Repo Facility that is going to complement the bank’s sterling liquidity facilities. In collaboration with the central banks in Japan, European countries, United states of America and Switzerland the bank has agreed to even further the liquidity provision through the swap line arrangements of the standing United States dollar.
With the countercyclical buffer rate that was on a path toward two percent by end of 2020, the central bank was obligated to reduce this rate to zero percent. This is meant to remain at zero for the next twelve months until the economy is approximated to start picking itself up.
Conclusion.
In any country a thriving economy is highly significant to the lives of its people. This is because more people are able to gain employment and business are facilitated with a healthy environment to thrive. To study how this is done and the level at which the economy plays it is important to consider the GDP. Tools such as fiscal policies and monetary policies are some of the macroeconomics tools that are used to keep the economy in check. This is because due to the effects of supply and demand in a country at different periods, an inflation may occur and result to the economy ending up in a recession. During this pandemic countries all over the world have had huge blow in their economy’s. Fiscal and monetary policies have proved very effective in saving the economies and helping keep them afloat. Without this policy measures the economy would experience consistent drop and would hit a level that would be nearly impossible to save (Ranasinghe et al., 2020). As corona virus is being effectively managed there is hope at the end of the tunnel that normalcy in the near future will resume. When this time comes the economy will be at a safe position to continue growing since due to the policies imposed by the fiscal and monetary tools will have kept it afloat in these trying times. It all goes to show that both policies need to be coordinated together in order to ensure that the efforts placed have a huge role on the economy’s future.
References:
Fernandes, N., 2020. Economic effects of coronavirus outbreak (COVID-19) on the world economy. Available at SSRN 3557504.
Hagedorn, M. and Mitman, K., 2020. Corona Policy According to HANK.
Hainbach, N. and Redeker, N., 2020. Flattening the Recession Curve Comparing Initial Fiscal Responses to the Corona Crisis Across the EU1. BertelsmannStiuftung Policy paper 9 April 2020.
Huang, Y.F. and Startz, R., 2020. Improved recession dating using stock market volatility. International Journal of Forecasting, 36(2), pp.507-514.
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