Question

Question 19 (20 points) With COVID 19, the economy was experiencing an unprecedented territory with a rapid decreasing economic activities as a strict Shelter In Place was declared in March and April. In late March 2020, U.S. government passed the Coronavirus Aid, Relief, and Economic Security (CARES) act, which is about $2.3 trillion. CARES act includes Paycheck Protection Program (PPP), a loan designed to provide a direct incentive for small businesses to keep their workers on the payroll. PPE loans will be forgiven if all employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities. CARES also includes U.S. government implemented the Federal Pandemic Unemployment program, which extended federal unemployment benefit, additional $600 per week to any individual eligible for any of the unemployment compensation programs. a. What would be short term effect of CARES act in U.S. economy? b. What would be long term effect of CARES act in U.S. economy? Or the question can be rephrased as "What would be a consequence of CARES act"? Explain using module 5. Aggregate demand and Aggregate Supply and module 6. Fiscal policy.

Answer 1

Answer a .

In the short term , the CARES act will provide the small business to keep going their work through digital platform etc.The aggregate supply and demand both are short or decline in short run because the shock impacted the economy severly .These policy of govt. would raise the earner expenditure to keep the demand and supply moderate and also the livelihood on short term basis.

Answer b

While in long run , the economy using the principle of self adjustment would get back to normal making the aggregate supply and demand normal .The CARE fund would be beneficial for the small businesses for long term also because it would give a backup while stablizing the economy .In case the interest rate ect anything raise or recession happened , the act will provide the businesses and its employee to work and get paid .Also the supply and demand with this will be stable .

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