Project Covid-19

The Global Shutdown

 Macroeconomic Model#1

AD – AS used in determining the

changes in

• Output
• Employment
• Inflation

AD IS THE TOTAL AGG. QUANTITY

OR OUTPUT THAT IS WILLINGLY
BOUGHT AT A GIVEN LEVEL OF
PRICES

AS IS THE TOTAL SUPPLY OF

GOODS AND SERVICES PRODUCED
IN AN ECONOMY
AGGREGATE
DEMAND AND
AGGREGATE
SUPPLY - taken
together
Recession

Expansion

Expansionary or Contractionary Policy

Recession and Deflation : Fall in Aggregate Demand
Recession and Inflation: Decrease in Aggregate Supply
Types of inflation
Demand Pull

Increase in Aggregate demand without

an adequate increase in supply.

When consumer demand outpaces the

available supply of many types of
consumer goods, demand-pull inflation
sets in, forcing an overall increase in
the cost of living.

When the aggregate demand in an

economy strongly outweighs the
aggregate supply, prices go up. This is
the most common cause of inflation.
Types of inflation
Cost Push

Cost-push inflation occurs when

overall prices increase (inflation) due
to increases in the cost of wages and
raw materials.

Higher costs of production can

decrease the aggregate supply in the
economy. Since the demand for goods
hasn't changed, the price increases
from production are passed onto
consumers creating cost-push
inflation.
 Monetary Policy
The actions undertaken by a nation's central
bank to control money supply and achieve
sustainable economic growth, keep
unemployment low, and maintain foreign
exchange (forex) and inflation rates in a
predictable range.

Monetary policy can be broadly classified as

either expansionary or contractionary.

RBI Tools: Open market operations, CRRs,

Direct lending to banks, Bank reserve
requirements, Unconventional emergency
lending programs, QE, and managing market
expectations.
 Fiscal Policy
John Maynard Keynes argued that economic
recessions are due to a deficiency in the
consumption spending and business investment
components of aggregate demand.

Keynes believed that governments could

stabilize the business cycle and regulate
economic output by adjusting spending and tax
policies to make up for the shortfalls of the
private sector.
In Keynesian economics, aggregate demand or
spending is what drives the performanagrowth
of the economy.

Fiscal policy can be EXPANSIONARY FISCAL

& CONTRACTIONARY FISCAL
Deficits or surplus? https://www.worldatlas.com/articles/countries-with-the-to
p-budget-surplus.html

• REMEMBER TO STABILIZE
THE ECONOMY, THE https://data.oecd.org/gga/general-government-deficit.ht
m
GOVERNMENT SHOULD RUN
LARGE BUDGET DEFICITS
DURING ECONOMIC https://datalab.usaspending.gov/americas-finance-g
DOWNTURNS AND uide/deficit/trends/

• THE
GOVERNMENT SHOULD https://www.statista.com/statistics/271318/budget-ba
lance-in-india-in-relation-to-gross-domestic-product-
RUN BUDGET SURPLUS
gdp/
DURING AN ECONOMIC BOOM
OR WHEN ECONOMY IS
GROWING.
 Deficits or surplus?
• REMEMBER TO STABILIZE THE
ECONOMY, THE GOVERNMENT SHOULD
RUN LARGE BUDGET DEFICITS DURING
ECONOMIC DOWNTURNS AND

• THE GOVERNMENT SHOULD RUN

BUDGET SURPLUS DURING AN
ECONOMIC BOOM OR WHEN ECONOMY
IS GROWING.

https://www.worldatlas.com/articles/countries-with
-the-top-budget-surplus.html
https://data.oecd.org/gga/general-government-def
icit.htm
https://datalab.usaspending.gov/americas-finance
-guide/deficit/trends/
https://www.statista.com/statistics/271318/budget
-balance-in-india-in-relation-to-gross-domestic-pr
oduct-gdp/
Let’s interpret The ET (26th March 2022)

1. Capex push to maximise multiplier effect,

says FM
Read more at:
https://economictimes.indiatimes.com/news/economy/finance/capex-push-to-maximise-multiplier
-effect-says-fm/articleshow/90452341.cms?utm_source=contentofinterest&utm_medium=text&ut
m_campaign=cppst

2. RBI board reviews economic situation

Read more at:
https://economictimes.indiatimes.com/news/economy/policy/rbi-board-reviews-economic-situatio
n/articleshow/87362336.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign
=cppst

3. Labour market witnesses uneven recovery in

January
Read more at:
https://economictimes.indiatimes.com/news/economy/indicators/labour-market-witnesses-uneve
n-recovery-in-january/articleshow/90450070.cms?utm_source=contentofinterest&utm_medium=t
ext&utm_campaign=cppst

4. Goldman sees half-percentage point Fed

hikes in May & June
Read more at:
https://economictimes.indiatimes.com/markets/stocks/news/goldman-sees-half-percentage-point
-fed-hikes-in-may-june/articleshow/90452261.cms?utm_source=contentofinterest&utm_medium
=text&utm_campaign=cppst
Let’s interpret The ET ( 10 June 2022)

https://economictimes.indiatimes.com/
wealth/personal-finance-news/banks-pa
ss-on-rbi-rate-hike-to-borrowers/articles
how/91340966.cms

https://economictimes.indiatimes.com/
opinion/et-editorial/all-rbi-is-saying-is-gi
ve-growth-a-chance/articleshow/92090
052.cms

https://economictimes.indiatimes.com/
news/economy/policy/rbis-decision-to-r
aise-policy-rate-to-help-economy-in-med
ium-term-says-assocham/articleshow/9
2110266.cms