The Coronavirus pandemic has spread globally, and the United States is not an exception. Nations have been facing various impacts of the virus, especially its economic effects. According to Parkin’s article, the Federal Reserve market reactions show trembling market forces (Parkin, 2018). The economist has expressed fear and called for national government intervention to cushion the U.S. citizens against the pandemic’s effects. Therefore, this paper aims to examine the fiscal policies that have been implemented by the American government to enable it to respond to the various impacts of COVID-19.
Businesses have been stopped unexpectedly since the state government has issued lockdowns limiting movements to reduce the virus’s spread. The federal government has also considered a stimulus package to financially aid American citizens and protect the economy from the recession (Parkin, 2018). The pandemic has insidiously resulted in lay-offs; hence, unemployment and reduced supply of goods, leading to inflation. Economists predict that if the vaccine is not created soon, the GDP could be significantly affected (Parkin, 2018). In light of these threatening consequences, the national government has approved 8 billion for serum development and prevention of further infections through the House of Representatives (Parkin, 2018). Therefore, the American government should focus on mitigating the adversities of COVID-19 to ensure the country’s economy and state operations return back to normalcy.
The national government intends to cut the payroll tax and increase government spending. Those who have lost jobs are to be given upkeep money directly to curb the unemployment rate. Fiscal policy refers to government spending, tax incentives, or payment transfers to directly impact the GDP (Parkin, 2018). According to Parkin’s article, the national government should consider cutting patrol taxes soon (Parkin, 2018). The effect of cutting income tax on payroll rises employee salary; thus, more money could be left for spending (Parkin, 2018). Moreover, the increased expenditure will ensure demand and supply are balanced to avoid cost inflation. An upsurge in disposable income during the pandemic period will make sure American citizens acquire their basic needs.
Figure 1 above shows the unemployment rate, which had risen by March 2020 (Parkin, 2018). The number of individuals has increased, similar to the historic economic recession.
Most of the individuals who lost their jobs were front-line workers in manufacturing industries. One of the fiscal policy’s objectives includes reducing the unemployment rate (Parkin, 2018). The national government wishes to initiate huge infrastructural developments to hire the affected Americans to maintain the employment rate (Parkin, 2018). Employment directly impacts inflation since joblessness will reduce the demand for a product as its supply increases above the citizen’s disposable income (Parkin, 2018). Therefore, the state government’s focus on boosting job recruitment rates will ensure a balance between supply and demand.
The fiscal policy program includes adjustments to the transfer of government payments. Therefore, when the government increases the bonds and other securities to attract more public and private investors, it intends to eliminate money hoarding (Parkin, 2018). Most people were scared when the first case of COVID-19 was reported in January. The panic led to impulse buying as most investors withdrew their investments for fear of uncertainties (Parkin, 2018). However, the Federal Bank announced that it would increase its bond and bill rates to retain the hoarded money (Parkin, 2018). The government’s move to minimize hoarding will ensure that money is injected back into the country’s economy through investments, thus boosting the nation’s economy.
In conclusion, the Keynesian theory states that increased government spending has a direct impact on the GDP. Therefore, consumers should spend more on extra income, which will directly impact the GDP. The White House should not encourage increased state expenditure since the economy was not significantly affected. Although disputed, the contrary opinions argued that increased government spending would ensure the money continues to flow in the economy, hence maintaining the GDP flow. Therefore, the fiscal policy implemented by the American administration will ensure that the country’s economy stays afloat despite the growing adversities of the COVID-19 pandemic.
Reference
Parkin, M. (2018). Economics (7th ed.). Pearson Education.