Consumption shock severe, economic recovery will take longer, poorest hit the hardest: RBI official statement on COVID 19 impact.
Based on statement, answer the following with reasoning:
1. What will be the impact of this on GDP and welfare?
2. What will be the impact on MPC?
3. Suggest fiscal policies that can be used to minimise the effects?
4.Suggest suitable monetary policy to minimise the effects?
5. How will it impact the objectives of the government budget?
6. What will be the impact on investment multiplier and money multiplier?
Answers
Explanation:
1. GDP is also an indicator of human welfare. In cross-country data, GDP per capita is highly correlated with other factors that are important for welfare. In particular, it is positively correlated with life expectancy and negatively correlated with infant mortality and inequality
2.Members of the RBI’s Monetary Policy Committee (MPC) have cautioned that the damage caused by COVID-19 and lockdown could “take years to repair” as the economic situation is “extremely gloomy” and high-frequency indicators suggest a “collapse of demand”, according to the minutes of MPC meeting held on May 22.
The RBI panel had slashed the repo rate by 40 basis points (bps) to 4 per cent to boost investment and demand and salvage the struggling economy. The MPC said it’s of the view that the macroeconomic impact of the pandemic is turning out to be more severe than initially anticipated, and various sectors of the economy are experiencing acute stress.
3 .