Reference no: EM133180842

Coronavirus Might tip the Global Economy into a Recession

The following is an excerpt from the captioned article

China is a leading player in the global trade through the production of goods and services. China is also a leader in a global logistics chain of events that allow global business and commerce to occur on time. Many businesses manufacture their goods in China, and countries rely on goods manufactured in China to satisfy many of their demands. From modern medicine to household consumption goods, to cell phones and office equipment, steel, and construction equipment, almost every and anything is made in China.

Since this coronavirus epidemic, countries have become sceptical of purchasing imported goods from China. The virus has led to a decline in Chinese output in some areas but an increase in others. The potential global slipover effects of the virus have led economists to believe that there might be a global recession looming in light of this. Some recessions are driven by supply, while others are driven by demand. Recessions like this might impact production and, therefore, the supply of goods and services, then impact income and demand negatively.

As a result, many countries are reforecasting their growth numbers downwards. The International Monetary Fund (IMF) has already forecasted global growth numbers downwards. All this is indicating the possibility of negative economic outturn by the end of the year, if this continues.

Written by: Dr. Andre' Haughton: Lecturer in the Department of Economics, UWI, Mona

Source: The Jamaica Gleaner - March 4, 2020

Questions:

1. Discuss what is meant by a recession?

2. Based on the scenario described above, what would largely be the main cause of the recession? (3 Marks) largely supply-side shock but also demand shock

3. The writer argues there will be potential impacts to supply of goods and services, income and demand. Discuss the potential impacts on these areas.

4. What role does the government play in developing fiscal policies?

5. How can the government use this policy tool to regain economic growth in a period of recession?

6. Outline the different lags that would affect the effectiveness of fiscal policy.