Question

Can you conduct some research on how you think the COVID-19 virus impacts the US economy, and if this rate cut is enough to hold the US economy aside from a recession?

Please provide a specific analysis of how this virus can impact all components of GDP (C, I, G and Net exports)

Answer 1

The Corona Virus was quite recently declared a pandemic by the World Health Organization. It is a disease which started in Wuhan China, and has spread to almost all parts of the world relatively quickly.

The International stock markets are seen rapidly crashing and people have begun hoarding stuff for long periods of time, just in case something odd happens.

In my opinion therefore, these are all perfect ingredients for reduced gross domestic product and recession in the United States and beyond. I believe that it could also cause a global recession if the disease in itself is not eliminated in the upcoming summer months.

The Federal Reserve on its part, has indeed cut interest rates to be able to get in more investments in the country, however my personal belief is that it would not have a major impact as people are unwilling to work because of the threat that this disease is giving them at this stage.

GDP is defined as the sum total of goods and services that are produced in the economy and are final goods or services which are ready for consumption.

The main components of GDP are consumption, investment, government expenditure and exports. The impact of the Corona Virus in all of the 4 components are as described.

1) Consumption: -

Due to the corona virus, we are certain that the consumption would take a hit. We can see that malls and markets are today empty because of the scare that community meetings and gatherings could lead to exposure are.

Further if people continue to be scared and isolate themselves in the way that they currently are, there could be a problem in which the overall consumption can be even lower than it what currently is. Therefore, the impact on this element of GDP is more likely negative.

2) Investments: -

With international travel bans across most countries and people refusing to go to work due to the threat of getting infected, people over the years are realizing that investments would suffer as well as a result of the virus itself. People are losing their jobs as a result of loss of demand and investments are going down by a large margin.

3) Government Expenditure: -

With consumption and investment going down, government expenditure is also decreasing. This is because tax collections are going down. Government requires funding in order for it to extend expenditure. Even though it has many sources of investments but yet taxes form a major chunk of investment opportunities for the government.

If the taxes collected are lower, governments are left with no sources of revenue to invest money. Therefore, this segment would also see a sharp cut in my opinion.

4) Net Exports: -

The next exports would also see a hit since the worlds demand for products and services is going down significantly. Once this happens people start demanding lesser products and the overall GDP from exports also declines.

Conclusion: -

Thus, from the above discussion we can conclude by saying that all elements of GDP which tend to also be interlinked are greatly affected by the corona virus and will all see a rapid decline if the same is not stopped. The world GDP is set to decline rapidly and this may cause serious economic problems for us.

Please feel free to ask your doubts in the comments section if any.