Pandemic and Economy during COVID-19

Assignment 3-Covid-19 Pandemic and Economy
Assignment 3
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The COVID-19 (coronavirus) pandemic affected the global world, and one of the main changes was restrictions on movements and social distancing. The US and other countries have mostly eased these restrictions, and the pandemic has had a negative impact on the economy. The travel entertainment, tourism, and hotel and restaurant industries were hit hard. While there have been changes, many more industries are still not at the pre-COVID-19 level, partly explaining the higher unemployment rate. Measures adopted to curb COVID-19 resulted in reduced consumer expenditure, the biggest component of the aggregate demand and US GDP, and this has slowed down the country’s growth potential. Fewer people not only visited business establishments, but small businesses were also disproportionately affected at a time when more people required government assistance. The paper focuses on the impact of the COVID-19 pandemic on the US economy.
The falling of consumer demand directly impacted the US economy since businesses and industries were faced with lower revenues and income, and it was more challenging to keep employees. Towards the end of 2019, there was global economic growth and expansion, but COVID-19 disrupted economic activities. In any case, the US economy has not been operating at full capacity since then, with companies reducing spending, including investments to reduce their costs. In macroeconomic theory, the multiplier effect highlights that the effect occurs when an increase in one variable (X) produces a fluctuation in another variable (y) and producing a greater increase in the latter. The consumption multiplier is one of these multipliers where increased consumer expenditure results in growth in demand, causing an equal increase in production and income. On the other hand, a decrease in spending affects the growth of various sectors and industries negatively.
Household savings increased partly because of restrictions imposed and the fear of infections rising faster during a time of economic uncertainty. Savings affect growth potential as people increase savings without necessarily investing as a cautious measure to protect themselves against the uncertainties. Even with government interventions and the Paycheck Protection Program (PPP) to keep businesses afloat and people employed, the household disposable income has decreased. There has been more focus on the impact of the COVID-19 pandemic on consumer spending, but there has also been a rise in personal savings to as high as 34% in April 2020 (Bauer et al., 2020). There has been a sharp drop in consumption, much higher than the drop in income, which has led to an increase in the savings rate, and this is mainly because of precautionary saving and not forced saving
The COVID-19 pandemic has had an unprecedented disruption in the US economy, including firms and households that were adversely affected by economic contraction. A slowdown economic at the aggregate level’s impacts on the households as a whole seems moderate. Still, the disaggregated levels of analysis have highlighted that the pandemic has hit low-income, low-wage earners, and temporary workers the hardest. In 2...