Covid-19 on economic variables Mathematics & Economics Essay

ECO 360 Final Exam
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ECO 360 Final Exam
Covid-19 on economic variables
The Covid-19 pandemic has had a serious impact on the U.S economy (Menickella, 2020). Despite the country having a controlled flow of essential services, states and their respective governments have no option but to put to action health measures. These measures include social distancing and isolation to curb the disease but, as a result bringing a significant blow to the economy. This situation has brought about global adverse effects in the economy, leading to a condition of recession with adverse effects such as job losses, inflation, shut down of companies and other small businesses, drop-in production rates from the industries.
Unemployment has taken center stage with the development of the pandemic to a severe level. In the United States, the introduction of quarantine measures has brought a standstill to most economic activities. This has reduced consumption to an estimated percentage of 25%. A reduction in consumption increases the level of unemployment, which is expected to be at 12.8% for the second quarter of the year. Sectors most affected include the travel industry with travel restrictions implemented worldwide. Statistics show that nearly 8% of employed workers in one month have lost their job as a result of the pandemic in the U.S. While those still in work, an expected probability of more than 30% risk job loss in the next four months. Overall growth in the number of employees on company payrolls dropped to 0.8 percent in March, down from 1.1 percent in February, according to a recent preliminary tax survey.
In the U.S, the so-called pandemic has, at the large, lead to inflation rates. In the month last the inflation of consumer prices decline to 1.7 percent. General merchandise price inflation, an earlier, less precise metric still being used for inflation-linked government bonds and other commercial operations, dropped from 2.7 percent in January to 2.5 percent. Inflation of producer output prices is a measure that can provide a guide to incoming inflation pressures slowed from 1.0 per cent in January to 0.4 per cent than most anticipated in February. The current situation is expected to bring a rise in inflation. With severe prevention mechanisms such as the social distancing with a response to the pandemic, inflations cause increases to a higher level. Reports indicate that the inflation rates are expected to rise for the coming month from 3.3 to 3.5 percent in the following month. There is a higher chance that it will turn contrary if the pandemic continues to exist for a more extended period. The standstill brings this in economic activities. The situation might bring a global financial crisis that will structurally weaken the economy. There is no good monetary policy that can offer flexibility for members of the different economic zones. The inflation rates are also brought by increased demand for cash to combat the pandemic; thus, there is a decline in the corresponding velocity for money. The high inflation rates are caused by the inability of service providers and manufacturers to supply the products and services to the consumer’s pandemic. It has also brought about a rise in the prices of various essential products and services, such as food prices up with the increase in demand. Costs of manufacturing products are also starting to rise with less availability and difficulty in obtaining them. This results in increasing inflation rates.
The corona-virus pattern is uniform, and GDP damage is unpredictable. Based on the recent outbreak and its impact on the economy, the pandemic has affected around 0.7% - 2.6 % of global economy majorly gross domestic product, oil prices are down, and volatile, which is a major part of the global economy and the stock market is facing COVID-19 hit. Major companies have confirmed losses due to stocks & borders limitations supply chain in production globally, cars, and flights have been hit by COVID pandemic at large. The manufacturing sector serves as a significant part of the economy, counting for almost 16% of the Gross Domestic Product (GDP) globally. However, the spread of the outbreak has brought a decline in Foreign Direct Investment (FDI).
UNEMPLOYMENT RATE

Rate of Unemployment, Percent, Monthly, Seasonal Adjustment



Frequency: Monthly


Date of Observation

RATE OF UNEMPLOYMENT

2020-03-01

4.4

2020-04-01

14.7

Source: (FRED, 2020)
Question#2
The deep economic decline of unsure duration in the United States has been triggered by the pandemic crisis as well as closures of connected businesses, cancellation of events, and working from home policies. This has forced the Federal Reserve to step in swiftly having a wide range of schedules to restrict the impairment of the economy from the epidemic. This entails approximately 2.3 trillion dollars in loaning to sustain employers, homes, economic markets, government as well as local governments. The Federal Reserve Board of Governors has deployed lending powers to an exceptional extent. Furthermore, the board will continue to apply the powers by force, proactively, and in an aggressive way so as to be confident that they can establish a solid road to recovery.
The Fed has been employing various measures supporting the economy developments in U.S and commercial markets. According to Meraw, Cheng & Wessel (2020), there is a full set of tools that have been applied by the Federal Reserve while preparing to upkeep the credit flows to all homes and trades. This will enable the promotion of employment at its maximum level and price stability goals.
* Federal funds rate seeks to have near-zero interest rates, which form the aim for the federal funds rate. The banks pay this rate for borrowing from each other instantaneously since March 3 totaling o1.5 percentage. This brings it to a value of below zero percentage going to 0.25 percentages. This move by Fed aims to lower the borrowing costs on mortgages, home equity loans, auto loans, and also reduction of the interest income earned by the savers. Thus, maximum employment and price stability goals will be achieved. This will see stronger labor market conditions, inflation, and development in economic activities.
* As a way of supporting the credit needs of businesses and households, some relating measures to the intraday credit, discount window, bank assets, and liquidity cushions, as well as requirements of reserve, were put in place by the Federal Reserve. This was to be contacted through harmonization with former central banks in the United States. In facilitation of the credit flow in the economy of U.S, the Fed has applied a wide set of extra measures. They entail; restoration of functionality in the vital markets through absolute purchasing of treasuries and agency mortgage-backed securities; sustaining smooth performance in money markets by implementing liquidity and funding measures and expansion of swap line with foreign central banks. Furthermore, the Fed is encouraging and permitting central banks to have the expansion of their balance sheets, thus able to support customers in their households and business.
* In attempts to support the bond liquidity of municipals, the two credit facilities of the Fed are being used to backstop the munis. On April 9, the scope and duration expansion of the Municipal Liquidity Facility (MLF) was declared by the Federal Reserve Board. This was part and parcel of the initiative to enhance the provision of loans up to approximately 2.3 trillion dollars to support U.S. households, businesses, and communities. The states and municipalities were to lend 500 billion dollars, which could help manage the cash flow stresses.
* The Federal Reserve is conducting the monetary policy of the nation. The Fed is trying to manage the short-term interest rate levels. In addition, it influenc...