Question

Coronavirus epidemic outbreak has had an untold hardship on the economy of Ghana. One of such influences was a rise in inflation rate from 7.8 percent in March, 2020 to 10.6 percent in April of the same year. Assuming this phenomenon persists; discuss the possible monetary and fiscal measures government may use to address the situation. You may use diagrams where necessary.                                      

Answer 1

COVID-19 pandemic has shaken the economy. Due to coronavirus pandemic small industries and businesses has impacted which has slowed down the economy and increased the rate of inflation. With situations involving huge numbers of tasks being cancelled and also increasingly avoidance of the hotels, restaurants, travel, and with the rapid descent of stock market, recession seems extremely likely. To help this situation caused due to the COVID-19, the economy needs a stimulus package which the combination forms of a monetary stimulus and fiscal stimulus. A stimulus package refers to a package by a government for the economic measures for stimulating a floundering economy. The main goal of the stimulus package is to reinvigorate the nation and reverse or prevent a recession by boosting spending and employment.

It is vital that policymakers must rapidly act to make strong fiscal measures to lessen the damage, both to the overall Ghana economy and the people of the nation. The response of fiscal policy must be both quick-acting and aggressive because it can act much more quickly by getting money into the hands of people’s within weeks or months. A broad fiscal policy can ensure continuous and broad access to safety-net programs, provide income support for the households, giving the incentives for employers for avoiding the layoffs, provide loans to small businesses, and giving liquidity cushions to firms and households for stimulating the economy.

Monetary policy can involve a reduction in the rates of interest on the discount window along quantitative easing (QE) or asset purchases. The capital requirements for banks are lowered. The banks are also encouraged by the central bank for using the liquidity and capital buffers to lend, which are funds reserved to face the hard times. We need an immediate coordination between fiscal and monetary policy.