Question

During the 2020 coronavirus pandemic, the United States' unemployment rate increased from a low of 3.5% to 14.7% (as of April 2020).

For a historical reference, during the Great Depression the US unemployment rate reached 25%. During the Great Recession, unemployment reached 10% (2009).

Using the economic concepts you have learned thus far, discuss the trade-offs for some of the decisions made in response to the pandemic as it relates to unemployment. Please try to keep the discussion centered around unemployment and economics.

Answer 1

During the pandemic, the Us Government announced 484 billion dollar spending initiative while US Fed announced rate cuts and 2 trillion dollars worth unlimited bond buying programmes all which boosts liquidity in market. This causes higher credit availability to corporate and thus hiring kicks off and unemployment in short run reduces.

However its tradeoff as lower unemployment leads to rise in disposable incomes and consumption and thus inflation goes higher based on Phillips curve movement. Moreover lower unemployment helps boost real GDP growth as tradeoff.

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