Question

Give at least 2 reasons why the current economic downturn, related to the corona virus crisis, is different from the start of a ‘normal’ economic recession.

Answer 1

1. Most of the reason for the normal recession revolved around the instability of the banking or financial sector whereas the current downturn is a result of a conscious decision taken by authorities to contain the health crisis. This crisis is not based on financial speculation but human behaviour and choices

2. Unlike the others which impacted aggregate demand first, the virus led to complete shutdown of industries, firms, and organization inducing an economy into supply shock hence the prolonged duration of the shut down put the economy into demand shock. The authorities are aware of how to deal with demand shock but that is not the case with supply deficiency.