Essay on Coronavirus Crisis: US Economy Braces for 47 Million Job Losses

Introduction

Coronal virus induced a shock to the US economy because the government had not anticipated that something like that would happen. The pandemic could freeze about 47 million jobs in the US, increasing the level of unemployment to 32% (Cox, 2020). Currently, about 67 million Americans are working in high-risk sectors; hence, they are likely to lose their jobs. The number is unique and creates a shock to the US economy, promoting the Congress to develop policies to bring back the economy to its full output (Cox, 2020). The application of the fiscal and monetary policies would help to mitigate the challenges encountered. The essay discusses how the coronavirus caused a shock to the United States, aggregate demand and supply model curve before and after the shock, and how Congress has responded with fiscal and monetary policies.

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Causes of the Shock

More than 2.1 million individuals have been infected with COVID-19, while more than 140,000 have lost their lives. The US government is putting in place measures to manage the spread of the pandemic and sustain its economy. The virus has shocked the US economy because about 22 million workers have filed for benefits related to unemployment (Hub staff report, 2020). Technical barriers prevent many Americans from enjoying their stimulus packages. Small Business Administration has run out of financial resources to support entrepreneurs financially. It means that most businesses cannot sustain their operations since they have lost their market base, as well as sources of finance to support their development activities.

Similarly, many employees are at risk of losing their jobs, meaning that the government will have many dependants. Most economic activities have stopped because of the drastic measures the government has taken to manage the spread of the virus. Sooner, the government is likely to lose its financial base and may not provide basic needs to its people (Hub staff report, 2020). Therefore, the virus is a shock to the economy, and it will take a relatively long time before businesses re-establish. In this regard, the US is staring at a potential financial crisis, although it is not the only country the pandemic has affected, it is the most hit. Therefore, the Federal government should critically monitor the situation and develop policies that would manage the economic effects of the virus.

AD-AS Model

From the economic point of view, aggregate demand and supply determine employment levels and output. Conversely, productivity growth influences aggregate demand and supply. It is because an increase in growth or productivity builds expectations of income in the future, encouraging them to spend more finances. Their expenditure enables growth in productivity and employment as figure 1 illustrates. Before the pandemic, the economy was at full employment, but now coronavirus has led to a decline in productivity growth. The result is that there will be lower demand, and unexpected unemployment levels (Fornaro, L & Wolf, 2020). Due to the negative impact of the pandemic, agents expect that there will be a growth in future productivity, inducing a demand-driven recession. However, the government through the central bank can take measures, such as reducing the policy rate to sustain aggregate demand. Lowering the policy induces agents to intensify their borrowing, improving business activities and this makes the supply and demand curves to shift outwards. The aspect requires the central bank to take policy measures that respond to the outbreak of COVID-19.

Fiscal Response

Congress has responded appropriately to the outbreak as a way of trying to sustain economic growth and maintain employment rates. It passed Corona Aid, Relief, and Economy Security Act also regarded as CARES Act, allocating $2.3 trillion to support various sectors of the economy (International Monetary Fund, 2020). The act provides $250 billion tax rebates to American citizens, $250 billion to accelerate and expand unemployment benefits and $24 billion to ensure food safety to vulnerable groups (International Monetary Fund, 2020). Also, the act spends $10billion to manage bankruptcy by availing loans to vulnerable groups and businesses while it allocates $359 billion to Small Business Administration to provide loans to small-medium enterprises so that they sustain their activities, and retain employment rates (International Monetary Fund, 2020). In this regard, the fiscal policy focuses on stabilizing economic growth and preventing individuals and businesses from bankruptcy problems since this would severely affect employment and economic growth.

The other fiscal policy response is Coronavirus Preparedness and Response Supplemental Appropriations Act. The other one is Families First Coronavirus Response Act and the two acts allocate 1% of the gross domestic products to manage the outbreak through testing, developing vaccines and therapeutics and other support victims require (International Monetary Fund, 2020). Also, the fund supports research and development by supporting research activities of Centers for Diseases Control Prevention responses, as well as providing people with paid sick leave (International Monetary Fund, 2020). Furthermore, it seeks to expand small businesses to encourage activities that support economic development. These fiscal policies are effective since they help to revive the economy and sustain business activities that would otherwise go bankrupt, leading to mass job losses.

Monetary Policy Response

Federal Reserve introduced policies that support the flow of credits under the CARES Act. Among the policies include Commercial Paper Funding Facility, facilitating the issue of commercial papers while the Primary Dealer Credit Facility fund financed various businesses operating in the investment-grade securities. Other monetary policies developed under the CARES Act include Money Market Mutual Fund and Primary Market Corporate Credit Facility that facilitated the purchase of bonds from various institutions (International Monetary Fund, 2020). Most of these policies focused on supporting business investments by providing liquidity to financial institutions as a way of providing incentives to small businesses to continue their operations and sustain to maintain employment rates. Additionally, the monetary policies encouraged financial institutions to lend their facilities to borrowers in this time of an outbreak so that they can sustain their operations and restructure their activities to avoid incidences of bad debts that would eventually lead to bankruptcy. These monetary policies are effective in managing the destructive effects of the outbreak by encouraging financial institutions to continue lending to manage the demand and supply, as well as employment opportunities.

Conclusion

COVID-19 outbreak has induced a shock to the economy of the United States and the government is taking appropriate measures to manage the effects of the problem. Many people are likely to lose their jobs while the government is struggling to provide social amenities to its people in this time of total lockdowns. The fiscal and monetary policies the Congress established are effective since they avail financial support to various institutions and small-medium enterprises to manage incidences of bankruptcy. For example, Small Business Administration funds focus on sustaining small businesses so that they do not run bankrupt, increasing the unemployment rates.

References

Cox, J. (2020). Coronavirus job losses could total 47 million, unemployment rate may hit 32%, Fed estimates. CNBC. https://www.cnbc.com/2020/03/30/coronavirus-job-losses-could-total-47-million-unemployment-rate-of-32percent-fed-says.html

Fornaro, L & Wolf, M. (2020). Corona virus and macroeconomic policy. https://voxeu.org/article/coronavirus-and-macroeconomic-policy

Hub staff report. (2020). COVID-19's historic economic impact, in the U.S. and abroad. https://hub.jhu.edu/2020/04/16/coronavirus-impact-on-european-american-economies/International Monetary Fund. (2020). Policy Responses to COVID-19. https://www.imf.org/en/Topics/imf-and-covid19/Policy-Responses-to-COVID-19#U

Roy, A. (2020). A new strategy for bringing people back to work during COVID-19. https://freopp.org/a-new-strategy-for-bringing-people-back-to-work-during-covid-19-a912247f1ab5