Economic Recession
To President Donald Trump
April 13, 2020
Purpose
The purpose of this briefing paper is to bring to your attention the economic downturn highlighted by the CNN Business article on April 10, 2020(Trafecante,2020). According to the reports, the United States economy has already experienced a recession since the outbreak of the Covid-19 pandemic. Further, I will provide an analysis of the current issue and provide recommendations that would revive our economy.
Background of the issue
The outbreak of the Covid-19 disease has crippled our economy since all sectors of the economy have been affected. This recession is characterized by a high rate of unemployment, low economic growth, high-interest rates, and reduced wages. A similar slowdown was experienced in the country during the outbreak of the SARS virus. To curb the spread of coronavirus, the government was forced to introduce the following measures, which in turn culminated in the economic crisis.
The government prohibited all forms of gatherings that would have provided a chance for a person to person transmission of the virus. This directive included the shutdown of business premises such as entertainment facilities, supermarkets, and markets. These business units generate revenue that boosts the country’s domestic gross product(GDP). Their shutdown has led to a sharp decline in GDP growth.
The federal government further directed the cancellation of all international flights to reduce the spread of the virus. International flights help in the importation of economic goods from other countries such as China and also exportation of finished products to other countries. These activities generate revenue for the country and also create employment opportunities for the Americans. The cancellation of these flights caused mass unemployment and a reduction in GDP.
Analysis of the issue
Due to businesses shutdown, the United States economic growth rate has declined by 2.4% in the first three months of this year. As the country continues fighting the virus, the commercial growth rate is expected to decrease further by 26.5% by June 2020 (Trafecante,2020). The decline in economic growth translates into an increased poverty level.
The pandemic will increase the unemployment level to 12% by June this year. It is also estimated that by the second quarter of the year,4.58 million Americans will lose their jobs (Trafecante,2020). The economic effect of position lose reduced disposable income and low purchasing power.
Cautionary Note
The fiscal and monetary policies adopted should be analyzed before they are taken to avoid the creation of an inflationary gap.
Recommended Actions.
The federal government, through the Federal Reserve bank, needs to formulate measures that will cushion the economy against further recession and try to reverse the situation. This would be done through a combination of both fiscal and monetary tools.
To revive the economy, the Federal government should increase the money supply in the economy by advancing more loans to small enterprises at a zero interest rate. This will improve peoples’ purchasing power and aggregate demand for commodities. Increased money supply will stimulate the economy from the recession.
The Federal Reserve should also reduce tax rates on businesses and increase government spending on infrastructural development. Reduced tax rates and more government spending increase people’s disposable income and thereby reviving the economy.
The government should also buy government bonds, bills, and other commercial papers from people. This will further increase disposable income and aggregate demand, which will, in turn, promote businesses. These measures will boost economic growth rate, employment rate, and level of Gross Domestic Product(GDP).
Covid-19 pandemic has brought adverse effects to the economy. Low economic growth rate, high unemployment rate, and low GDP are some of the impacts of this pandemic. The federal government should implement both fiscal and monetary tools to revive the economy from the recession.
Reference
Trafecante K., (2020, April 10). The United States is already in a Recession,45 economists say, CNN Business, https://edition.cnn.com/2020/04/10/business/united-states-recession/index.html