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    Covid19 Submission

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    Pinakin Nath
    1) India would experience cyclic unemployment due to the sharp decline in aggregate demand caused by the COVID-19 lockdown. Both demand and supply were negatively impacted initially. 2) The recession was largely demand-driven as lockdowns disrupted incomes and consumer spending, shrinking aggregate demand and GDP. 3) To boost the economy, the government should adopt expansionary fiscal policy like increasing spending, reducing taxes, and controlling healthcare costs. The RBI should adopt expansionary monetary policy by lowering interest rates to increase lending and money supply.

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    Covid19 Submission

    Uploaded by

    Pinakin Nath
    161 views7 pages
    1) India would experience cyclic unemployment due to the sharp decline in aggregate demand caused by the COVID-19 lockdown. Both demand and supply were negatively impacted initially. 2) The recession was largely demand-driven as lockdowns disrupted incomes and consumer spending, shrinking aggregate demand and GDP. 3) To boost the economy, the government should adopt expansionary fiscal policy like increasing spending, reducing taxes, and controlling healthcare costs. The RBI should adopt expansionary monetary policy by lowering interest rates to increase lending and money supply.

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    1) India would experience cyclic unemployment due to the sharp decline in aggregate demand caused by the COVID-19 lockdown. Both demand and supply were negatively impacted initially. 2) The recession was largely demand-driven as lockdowns disrupted incomes and consumer spending, shrinking aggregate demand and GDP. 3) To boost the economy, the government should adopt expansionary fiscal policy like increasing spending, reducing taxes, and controlling healthcare costs. The RBI should adopt expansionary monetary policy by lowering interest rates to increase lending and money supply.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    161 views7 pages

    Covid19 Submission

    Uploaded by

    Pinakin Nath
    1) India would experience cyclic unemployment due to the sharp decline in aggregate demand caused by the COVID-19 lockdown. Both demand and supply were negatively impacted initially. 2) The recession was largely demand-driven as lockdowns disrupted incomes and consumer spending, shrinking aggregate demand and GDP. 3) To boost the economy, the government should adopt expansionary fiscal policy like increasing spending, reducing taxes, and controlling healthcare costs. The RBI should adopt expansionary monetary policy by lowering interest rates to increase lending and money supply.

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    You are on page 1of 7

    Name Pinakin Nath Barbhuiya

    Question 1

    Collusion is the phenomemeon which is being talked about. It is basically an agreement be-
    tween firms in a market(Oligopoly) to set the prices for their goods in order to gain profits. The
    colluding countries come together to form a Cartel.
    Advantages -

    • It manipulates prices and reduces the cost in market. They can control the falling price.
    • One of the biggest advantages was how OPEC was able to control the oil prices which im-
    pacted all economies at global level.
    • It was expensive to store the oil. As supply was reduced, cost for storage also reduced.

    Disadvantages -

    • The competition went down. Collusion lead to higher prices for consumers.
    • There is less decsion making in terms of quality, quantity and choice.
    • Entry barriers could be created. Newer firms demoralized to enter the market.

    The demand for oil went down due to COVID-19 lockdown which lead to excess of oil and in-
    creased cost ot storage.
    Due to shortage of storage spaces, OPEC was forced to cut supply of oil.

    Desired outcome - their ability to limit the prices from falling down further. Saving the cost of
    storage can be considered as well.

    Before the decision to reduce the supply -


    The demand curve shifted leftwards but since the OPEC was continuously supplying oil, the
    supply curve shifted towards right leading to decrease in prices. So, basically fall in demand
    and increase in supply will lower the prices.

    After the decision to reduce the supply -


    There will be reduction in supply i.e. supply curve will shift leftwards accompanied with in-
    crease in demand i.e. demand curve will shift rightwards. The prices started to increase which
    started to stabilize the economy.

    OPEC operarates in Oligopoly market.

    Key features of such market -

    • There are only few large firms which dominate the market.
    • A product can be identical or differentiated.
    • Interdependence of various firms is present i.e. decisions of each firms affects the market.

    Question 2

    Number of articles business was producing - 92


    Total profit - 2500

    From the table provided in the question Total cost(TC), Total revenue(TR) along with Mar-
    ginal cost and Marginal revenue (MC and MR) were calculated.

    Profit Maximisation can be defined as the point where MC=MR. Basically if a firm chooses to
    maximise its profits, it must choose that level of output where Marginal Cost (MC) is equal to
    Marginal Revenue (MR).

    We would have to hire 4 journalists. It is calculated by the difference between the profit max-
    imisation calculated in 2(a) and 2(b).

    New Total profit is - 1500

    Earlier profit maximisation happened when there were 8 journalists. After removing the fixed
    costs, new profit maximisation happened when there were 4 journalists. As we are looking at
    profit maximisation, the negative change in profit would lead to extra cost and no profit. So,
    keeping those extra journalists won’t be favourable.
    Question 3

    India would experience cyclic unemployment.

    What we noticed in early months of April and May just after lockdown was significant down-
    fall in aggregate demand. After lockdown was hit, demand for goods and services went down
    what we can call as economic downturn. This decreased demand meant that the economy
    couldn’t support full employment and many companies had to lay off their employees. Many
    small shop businesses suffered shocking fall in their income leading to letting go of most of the
    employees. As a result , consumer spending also became limited .

    Both demand-led and supply shock recession. However, this was largely a demand-led reces-
    sion.

    The Aggregate Demand in an economy includes Household Consumption, investments,


    government spending and difference between exports and imports. The pandemic created a sit-
    uation of panic and unrest globally due to the deadly virus increase in the number of deaths.
    The lockdown disrupted the income for majority of the population. Due to low income and un-
    employment the demand and spending limit also lowered leading to fall in aggregate demand
    eventually affecting/reducing our GDP as well.

    Both AD and AS shifted leftwards.


    Aggregate demand (AD) - Because of decrease in consumer spending and their willingness to
    invest, AD fell and shifted towards left.
    Aggregate supply(AS) - Demand took a sharp downfall when lockdown was imposed but sup-
    ply remained same which created a surplus in the market leading to leftwards shift in supply
    curve.
    Also, when the AD curve shifted leftwards (supply remains same), there will be recession.
    GDP will fall and prices will decrease as well.

    AD and AS curves will shift leftwards.

    The only difference in the above being , when AD curve shift leftwards prices will be lowered .
    On the other hand, when AS curve shift leftwards prices wll increase. GDP will fall in both the
    cases .

    Question 4
    The type of macroeconomic policy Indian government should adopt will be Fiscal policy.

    Expansionary Fiscal policy (in exact terms) would be applicable here.

    Policy measures -

    In country like India when COVID was hit, a lot of people lost their jobs after the lockdown. In
    such cases government should step in , help provide basic compensation to daily wage workers,
    farmers, control the medical charges and provide appropriate healthcare facility to the needy
    people.

    Lowering the taxation rates helps consumers as they have more money in their end for spend-
    ing on necessary things. This helps the countries keep the economy flowing.

    The type of macroeconomic policy RBI should adopt after such crisis will be Monetary policy.

    Policy measures -

    Reduce interest rate : Government should reduce interest rates on borrowing money as that
    would encourage the consumers to take money(loan) and spend the same again which in turn
    increases the demand and flow of money in market.

    By buying or selling goverment bonds, a central bank affects the money supply in the market.
    It encourages businesses to invest more and consumers to spend more.

    Repo rate and reverse repor rate also are an important measure.
    Repo rate : rate at which central banks gives loan to commercial banks against government se-
    curities.
    Reverse repo rate : Interest rate RBI pays to commercial banks when they park their access
    cash with the central bank.

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