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Impact of the Coronavirus Crisis Through Microeconomic and Macroeconomic Concepts
Coronavirus disease (COVID-19) is an infectious disease caused by a newly discovered coronavirus. This is a new virus that has been discovered in 2020 all around the world. During this virus has occur, there has been many economic impacts and has caused problems for example increase of unemployment and the banks reducing interest rates. Also, the main impact which is cause is the supply and demand. The essay will discuss the microeconomic and macroeconomic impacts.
Microeconomics
The first reason of why the economy has been affected is that the Prime Minister, Boris Johnson, has decided to make the country to go in lockdown which means the public should stay home and if they can work from home they should. Most individual firms have been closed because they don’t have any customers for them to run it. For example, a firm that has been affected majorly would be taxi firms as the public have been told to stay at home so there will be no customers travelling therefore this will leave the drivers to sit at home too. However, the grant would be worth 80% of self-employed workers’ profits up to a cap of £2,500 per month, which initially will be available for three months in one lump-sum payment. Also, because of small businesses have been shut down, the struggle companies and self-employed have been offered financial help by the government to help their business afloat and staff paid during the coronavirus outbreak. This will affect the government because they will be spending too much and will start being in debt.
Also, another major affect would be a change in supply and demand which causes the price to change. During this coronavirus outbreak, there has been a high demand in certain items for example toilet paper and hand sanitizer. In huge businesses such as Tesco, there has been a huge demand in those two items because the public need it. The supplier’s that private those two items have not been keeping up with the demand for those items so the supply has been less in those shops and which has led some shops to increase the prices because they know customers will need to pay for essentiality. The benefits for this would be business who provide hand sanitizers and toilet paper have been a huge profit because of the panic. There are more items that have been a very high demand such as essential foods like milk, bread, pasta and bread. The demand is so high that super markets have been putting restrictions on these items so everyone can have a chance to buy them as suppliers have not been supplying them.
There have been other businesses that have been affected negatively for example oil companies. The oil companies have taken a massive loss because the government have banned travelling to other countries and for people to go outside. Therefore, the public do not really need to use petrol because are not going. This is a problem for petrol stations because they are not getting customers. Another business affected will be airlines like Emirates, which travel with fewer people so flights are largely quiet and they don’t use oil. Due to demand being very low, oil companies have decided to put their prices very cheap and the oil stocks have been low to be bought. Also, due to the competitive market, the oil companies face to fight with prices to attract customers and stocks to be bought. The supply decreases and the prices increase. For example, in businesses, they did not have enough supply for the consumers so some business took advantage and they increased the price of their items as they know the consumers will pay anything for essentials items such as toilet paper and essential food items. This allows the business to charge premium price for their products. Also, manufactories worldwide are still working out how the virus will negatively impact their business and what the impacts will look like. For example, Automakers will be affected too and they make see a negative supply impact due to the reduced number of parts coming from China which was the main outbreak of Coronavirus. You can see everyone is really affected due to the low of supply and this can cause an impact to the economy because the government will be proving them grants to keep running the business. China is a huge source of components and goods and too many businesses depend on China and this is a huge impact because China limits their travel and consumption as China are being slow down or even postponing their production.
The demand shift decreases. This relates to this coronavirus outbreak because the demand in desirables decrease such as petrol. The consumers have been told to stay inside so they would not need to use any petrol in their cars or they are not taking any flights so the airline businesses do not need oil therefore the oil price is cheap.
Macroeconomics
During this corona virus outbreak, the economy has been damaged quite significantly around the world leading it going to recession. Macroeconomics is the branch of economics that studies the behavior and performance of an economy as a whole. This outbreak has caused the government deciding to take measures for the consumers. The government took measures that they have taken for example increasing their debt to cushion the economy. This part of the essay would be strictly about the macroeconomics concept of how the economy has been impacted.
First of all, the economy has been pretty damaged not because of the coronavirus but the measures the government have taken. For example, they have used the monetary policy which the banks cover and they have use the fiscal policy what the government do for their budget. The step that the banks have made to reduce the economic consequences is to reduce the interest rates. They have reduced interest rates for the consumers so borrowing would be easier. The Bank also pumped more money into the economy. The cut of interest rate will reduce the mortgage bill of homeowners and little will change for savers. This action by the bank will to help and protect businesses and homeowners for them to have extra cash to help them survive in this crisis. Also, the bank has took another measure such as to intervene in financial markets, put a lot of money in financial markets to make sure that they function properly and to make it easier for banks to lend into the real economy and reduced taken away some regulations like some rules again to make it easier for banks to lend. Lastly, another thin they have done is to go on a buying spree such as central banks have put plenty of money on the line to make sure they buy assets for example government bonds and corporate bonds again to make it easier for consumers to borrow. This has a negative impact for the government and the economy because they have increased the government debt for them to protect the economy from a deep shock. During this recession, the effects of unemployment would be high government and wasted resources as the high levels of unemployment just doesn’t affect the unemployed people but local economies, unemployed people contribute less to the economy because they are spending less and borrowing more. Another impact on the economy will be that the increase of poverty can increase as people are put out of jobs and people’s home may be taken away from them as cannot afford mortgages or afford to pay the bills or even if government grant will not be enough to cover their expenses depending on the number amount of people in a household. The impact of poverty can cause poor sanitation and this can cause the disease to spreads
There are some short-term impacts that the economy will have to suffer. There are likely to have negative effects on both the demand and supply side of the economy. Negative supply shocks could come as some workers have to self-isolate as they may have the symptoms of the virus or been tested positive. This coronavirus outbreak is mostly a negative supply shock that recuses growth and increases costs and inflation with some negative effects for aggregate demands. Furthermore, the government had to decide to pay self-employees or the workers who are out of their job to pay eight percent of their wages every month. The reason behind this is because they want help the pubic survive through the crisis. This gives puts the economy into a negative situation because the government will have pay this off and in addition to make this worse, the government have decided to pay wages of workers on leave and will be extended to October. Over the next few quarters, the impact of a severe recession is likely to be a disinflationary. Public health measures an aggregate demand as workers lose income if they do not work and opportunities to be disappeared and aggregate supply as business cannot and will not produce without workers and money.
Furthermore, this coronavirus outbreak represents the Keynesian economics. The Keynesian model is an economic theory of total spending in the economy and its effects on outputs and inflation. It was developed by the British economist John Maynard Keynes during the 1930 which was an attempt to understand the Great Depression. Keynes encouraged for increased government expenditures and lower taxes to stimulate demand and pull the global economy out of the depression. This is similar to the coronavirus outbreak because the government have increased the expenditure as mentioned above for example using grants to support the public and reducing interest rates for the public to borrow more money. Keynesian macroeconomics argues that the solution to a recession is fiscal policy, such as tax cuts to stimulate consumption and investment increases in government spending that would shift the aggregate demand curve to the right.
Conclusion
In conclusion, at the microeconomic level the economy has been impacted because of the supply and demand. The losses of job have caused the public to not spend money on any desirables and they will need the essentials for them to survive. This has caused the demand to increase and therefore the supply to decrease. However, the government giving the public grants up to 80%, this will cause an increase of the country going into debt. The public finances will be significantly affected by the economic shock of the coronavirus outbreak. The Government’s budget deficit will increase as tax revenues fall and government spending increases. The initial disruption was to supply chains mainly from China, the beginning of the outbreak. As the outbreak spread around the world and into the UK, the public health measures to slow its progress which means that there will be fewer people working and individual firms to be shut down. Furthermore, to these supply shocks, there are shocks to demand in the economy. The public are being recommended not to leave their homes and with many businesses struggling to survive, unemployment will likely rise and the publics spending will likely fall.
At the macroeconomic level, the outbreak has caused a very deep recession due to the government increasing their expenditure and has left a pretty big hole. This will be hard to the government to come back to improve the economy as schools have been shit and non-essential businesses. This will be hard because if the non-essential business start running, the public will not really be interested as they have a low spending budget so some businesses have been damaged. Also, another reason businesses are not running is due to social distancing as some of the consumers do not have the patience so they will not buy any products. As the government continue to support businesses for them to keep them running and for families who have been put off their jobs due to this crisis, the longer the outbreak stands for, the more painful it gets for economy to recover from this recession as a very high employment rate will increase, falling average incomes and increase of inequality and a very high government borrowing which means a less tax revenue.
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