explain the effect on expenditure of price of the good is raised by 9% and ed is -0.7
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Answer:
The global macroeconomic outlook is overcast with the COVID-19 pandemic, with massive dislocations in global production, supply chains, trade and tourism. Financial markets across the world are experiencing extreme volatility; global commodity prices, especially of crude oil, have declined sharply. COVID-19 would impact economic activity in India directly due to lockdowns, and through second round effects operating through global trade and growth. The impact of COVID-19 on inflation is ambiguous, with a possible decline in food prices likely to be offset by potential cost-push increases in prices of non-food items due to supply disruptions.
As this Monetary Policy Report (MPR) goes for release, the global macroeconomic outlook is overcast with the COVID-19 pandemic. With over 12 lakh confirmed infections and over 67,000 deaths across 211 countries as of April 7, 2020 and counting, the sheer scale and speed of the unfolding human tragedy is overwhelming. The disruption of economic activity in a wide swathe of affected countries is set to intensify in the face of headwinds in the form of massive dislocations in global production, supply chains, trade and tourism. Global output is now seen as contracting in 2020. Financial markets across the world are experiencing extreme volatility: equity markets recorded sharp sell-offs, with volatility touching levels seen during the global financial crisis; flights to safety have taken down sovereign bond yields to record lows; risk spreads have widened; and financial conditions have tightened. Global commodity prices, especially of crude oil, have also declined sharply in anticipation of weakening global demand on the one hand, and the failed negotiations of the Organisation of the Petroleum Exporting Countries (OPEC) and Russia, on the other.
Many central banks have eased monetary, liquidity and regulatory policies to support domestic demand, including through emergency off-cycle meetings. Bilateral swap lines between some central banks that were deployed during the global financial crisis have been activated. G7 finance ministers and central bank governors have stated that they stand ready to cooperate further on timely and effective measures. G20 finance ministers and central bank governors have committed to use all available policy tools to deal with COVID-19. G20 Leaders have resolved to do whatever it takes to overcome the pandemic. The International Monetary Fund (IMF) and the World Bank Group are making available US$ 50 billion and US$ 14 billion, respectively, through various financing facilities to their membership to help them respond to the crisis.
Turning to the domestic economy, India has not been spared from the exponential spread of COVID-19 and by April 7, more than 4,700 cases had been reported. While efforts are being mounted on a war footing to arrest its spread, COVID-19 would impact economic activity in India directly through domestic lockdown. Second round effects would operate through a severe slowdown in global trade and growth. More immediately, spillovers are being transmitted through finance and confidence channels to domestic financial markets. These effects and their interactions would inevitably accentuate the growth slowdown, which started in Q1:2018-19 and continued through H2:2019-20. Meanwhile, headline inflation stayed above the upper tolerance band of the inflation target band during December 2019-February 2020, led by a spike in vegetable prices. While it has peaked and vegetable prices are on the ebb, the impact of COVID-19 on inflation is ambiguous relative to that on growth, with a possible decline in prices of food items being offset by potential cost-push increases in prices of non-food items due to supply disruptions.