COVID -19 has plunged many countries into a recession resulting from a substantial decrease in aggregate spending
Question:
COVID -19 has plunged many countries into a recession resulting from a substantial decrease in aggregate spending and increasing unemployment rates above the natural rate of unemployment.
(i)Explain the appropriate discretionary fiscal policy response that governments can employ to restore their countries economy to full-employment equilibrium.(3 marks)
(ii)Assume you own a new car dealership and your friend owns a mini market.
How would a recession due to COVID-19 affect each of the businesses here?Explain.(4 marks)
(iii)You were reading a news article that stated the unemployment rate fell by 0.2 percent which took you by surprise given the effects COVID-19 has had on the labour market.As you continued to read the news article, it stated that the labour force participation rate has decreased by 0.4.Is this positive news for the economy?Explain.(3 marks)