INTRODUCTION TO MACRO ECONOMICS

Covid-19 Pandemic
GROUP
and ASSIGNMENT
the U.S Economy
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2
 TABLE OF CONTENTS

I. Introduction
II. Impact of Covid-19 on the United States
1. On the public health front
2. Impact on individuals
3. Collapse in almost all aspects of the economy
III. United States economic policy response
1. Monetary policy
2. Fiscal policy
3. Fiscal vs. Monetary policy
GROU
IV. Results of policies
1. Monetary policy

P
2. Fiscal policy
V. Longer-term challenges
1. Inflation challenge

MEMB 2.
3.
4.
Difficulties (Re)Building Workforces in Key Sectors
Increase in remote work
Lower population growth
5. More geopolitical uncertainty
VI. Conclusion
VII. Individual opinion
VIII. References
IX.

Lê Hồ Kim Anh – BABAWE20184

Trần Bích Khuê – BABAWE20154
Nguyễn Thị Thanh Thảo – BABAWE20133
Phạm Ngọc Thủy Tiên – BABAWE20183

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I. INTRODUCTION
COVID-19 has caused extraordinary disruptions to global and that
includes U.S. The global economy in general and the U.S economy in
particular have been facing negative consequences caused by the Covid-19
pandemic. Causing a significant number of casualties and shutting down
important industries. Social distancing and economic closure hinder
manufacturing and company activity, increasing unemployment in the
United States. The closure of businesses to prevent the spread of the
Covid-19 pandemic has resulted in a substantial decline in demand for a
variety of items and consumer spending, resulting in a drop in retail sales,
particularly in marketplaces. Especially in non-essential businesses such as
automobiles (consumption declined by 25.6%), furniture (revenue dropped
by 26.8%), and apparel (revenue fell by 50.5%).

The U.S has introduced supportive measures through the combined use
of various tools. Announcing the next package of financial measures worth
$2.3 trillion to support the U.S economy through the crisis. The program is
designed to support businesses, households and state governments that
have been hit hard by much of the economic shutdown. And measures are
aimed at maintaining credit for households and businesses in the context of
the economy being severely affected by the Covid-19 pandemic. This
assignment analysis is a process of how the U.S shaped, designed, and
implemented policies to overcome the economic consequences of covid.
1.

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 II. IMPACT OF COVID-19 ON THE
UNITED STATES ECONOMY
Situation: The COVID-19 pandemic has had repercussions for economies
around the globe. Although the U.S. economy suffered one of the sharpest
contractions in its history during 2020, the economic damage was even greater
in many foreign countries. The pandemic has disrupted lives, pushed the
hospital system to its capacity, and created a global economic slowdown. The
economic crisis is unprecedented in its scale: the pandemic has created a
demand shock, a supply shock, and a financial shock all at once (Triggs and
Kharas 2020).
1. On the public health front
Starting in the densely populated urban centers and then spreading to
more-rural parts of the country (Desjardins 2020). Early on, COVID-19
cases were concentrated in coastal population centers, particularly in the
Northeast, with cases in New York, New Jersey, and Massachusetts
peaking in April (Desjardins 2020). By April 9, there had been more
COVID-19–related deaths in New York and New Jersey than in the rest of
the United States combined (New York Times 2020). COVID-19–related
deaths then peaked in the New England and Rocky Mountain regions
during the third week of April, followed by the Great Lakes region in the
fourth week of April, and the Mideast (excluding New York and New
Jersey) and the Plains regions during the first week of May. The Southeast,
Southwest, and Far West regions all experienced their peaks at the end of
July and first week of August.

2. Impact on individuals

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 i. Unemployment
The collapse in employment is of an unprecedented magnitude and
seems likely to rival or exceed that of any recession in the last 150 years.
COVID-19–related job losses wiped out 113 straight months of job
growth, with total nonfarm employment falling by 20.5 million jobs in
April (BLS 2020b; authors’ calculations). Increasing from 3.5% in
February to 14.7% in April, representing a decline of more than 25 million
people employed, plus another 8 million persons that exited the labor
force. The unemployment rate for 2020 was 8.05% and 5.46% in 2021.

ii. Home sales

People who could afford to buy homes enjoyed the lowest mortgage
interest rates since at least 1971. Home sales rose and showed a trend of
people who could work from home moving out of expensive, large cities
into smaller, lower-cost cities where they could afford larger homes with
more on-site amenities. States like California and New York, as an
example, are seeing an exodus as a result of the pandemic. Housing prices
rose amid a building boom as lumber futures reached an all-time high.

iii. Food insecurity

The pandemic has left millions of people in the U.S. at-risk when it
comes to nutrition and overall health status. Feeding America states that
the estimated number of food-insecure kids could jump from 11 million to
an estimated 18 million.
Additionally, many children in the U.S. rely on free meals for
sustenance. While food banks and pantries have amped up services, the
temporary disruption in these services could have devastating long-term
consequences. Seniors are also particularly vulnerable to the devastating
effects of COVID-19, leading many to avoid unnecessary visits to food
pantries and health clinics. Undocumented immigrants are arguably the
most vulnerable to food insecurity because they are ineligible for many
government assistance programs. Even before the pandemic, 1 in 4
experienced food insecurity. Instead, many must rely on food pantries and
local community-based health centers for assistance.

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 3. Collapse in almost all aspects of the economy
i. Real GDP
Real GDP: is forecast to fall at a nearly 38% annual rate in the second
quarter, or 11.2% versus the prior quarter, with a return to positive growth
of 5.0% in Q3 and 2.5% in Q4 2020. However, real GDP is not expected
to regain its Q4 2019 level until 2022 or later.

ii. Financial market

 Bond markets: Demand for safe haven assets, including United
States Treasury notes, has increased sharply as volatility and
uncertainty spike. United States Treasury security yields plummeted
in the first quarter of 2020 as a result. The decline in short-term
Treasury yields was steeper than the declines in longer Treasury
maturities. The decline in Treasury yields is a sign that economic
doubts and aggressive monetary stimulus remain powerful forces
holding down long-term interest rates.
 Equity markets: The bull market that began in March 2009, when the
Standard & Poor’s 500 (S&P 500) bottomed out after the global
financial crisis, had lasted just over 10 years by end-2019, making it
the longest in history. However, it came to an end in early 2020. On
31 March, United States stocks closed out their worst quarter since
the depths of the financial crisis, with markets reeling from the
staggering losses inflicted by an economy paralyzed by the
coronavirus disease.

iii. Trade flows and supply chains

In the United States, exports of goods and services fell by US$141.5
billion, or 13.6% and imports were down US$173.1 billion, or 13.3% in
the first five months of 2020 relative to the year-earlier period. United
States trade fell most sharply in April 2020 (see figure 12), as citizens
were encouraged to stay home and other measures were implemented to
slow the spread of COVID-19. The shutdown of the United States
economy started in mid-March and continued until at least mid-May, when
some states slowly began to reopen their economies.

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 iv. Energy sector
According to the 2020 oil industry financial crisis, the U.S. oil, gas and
chemicals industry lost 107.000 jobs between March and August 2020,
according to Deloitte. When demand for jet fuel, diesel and gasoline
suddenly dropped, oil was in oversupply.

v. Aviation industry
Based on air traffic data from the Bureau of Transportation Statistics,
performed departures decreased by 71.5% in May 2020 compared to May
2019. The number of domestic U.S. markets served between commercial
airports decreased by 32.1% during the same time as airlines modified
their networks. Domestic air service reductions were not uniform. Airlines
decreased their departure operations at larger airports more than at non-
primary airports (73.7% versus 39.2%). Additionally, large origin airports
experienced a greater decline in domestic U.S. markets served compared
to non-primary airports (35.3% versus 11.8%). Markets served by airports
in multi-airport cities decreased more than airports in single-airport cities
(38.5% versus 15.8%).

vi. Healthcare sector

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 As with so many aspects of American life, the COVID-19 pandemic
had a dramatic impact on the nation's health sector in 2020, driving a 9.7%
growth in total national healthcare spending, bringing spending to $4.1
trillion.

The following table illustrates the impact of the pandemic on key

economic measures. February 2020 represented the pre-crisis level for
most variables.

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III. United States economic policy
response
The role of the government in the American economy extends far
beyond its activities as a regulator of specific industries. The government
also manages the overall pace of economic activity, seeking to maintain
high levels of employment and stable prices. It has two main tools for
achieving these objectives: fiscal policy, through which it determines the
appropriate level of taxes and spending; and monetary policy, through
which it manages the supply of money. The Federal Reserve, the
independent U.S. central bank, manages the money supply and use of
credit (monetary policy), while the president and Congress adjust federal
spending and taxes (fiscal policy).

1. Monetary policy
The Federal Reserve is the central bank of the United States. Part of its
mission is to conduct monetary policy to meet its Congressional mandate
of maximum employment and stable prices. The Fed’s monetary
policymaking body, the Federal Open Market Committee (FOMC),
accomplishes this “dual mandate” by gathering eight times each year
(sometimes more) to discuss and set the stance, or position, of monetary
policy to guide employment and prices in the desired direction.

The goals of monetary policy are to promote maximum employment,

stable prices, and moderate long-term interest rates. By implementing
effective monetary policy, the Fed can maintain stable prices, thereby
supporting conditions for long-term economic growth and maximum
employment.

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 The Federal Open Market Committee (FOMC) conducts monetary
policy by setting the target range for its policy rate -- the federal funds
rate, the interest rate that banks charge each other for lending or borrowing
reserve balances overnight. The federal funds rate is a key short-term
interest rate that influences other interest rates in the economy. 
The Fed implements the FOMC’s policies by using its monetary policy
tools to steer the federal funds rate into the FOMC’s target range. The
Fed’s toolbox is composed of many tools, including three key tools with
associated interest rates that are referred to as the Fed’s administered rates:
 
- The interest on reserve balances (IORB) rate is the interest rate that
banks earn from the Fed on the funds they deposit in their reserve
balance accounts. IORB is the Fed's primary tool for guiding the
federal funds rate.
- The overnight reverse repurchase agreement (ON RRP) rate is the
interest rate that a broad set of financial institutions can earn on
deposits with the Fed. The ON RRP facility is a supplemental tool of
monetary policy to help set a floor on short-term interest rates. 
- The Discount rate is the interest rate charged by the Federal Reserve
to banks for loans obtained through the Fed's discount window.
In addition, the Fed uses a fourth tool, open market operations, to
ensure that the level of reserves in the banking system remains large
enough that small adjustments to the level of reserves do not affect the
federal funds rate.
Because banks can always deposit their money at the Fed and earn the
IORB rate, banks see the IORB rate as a reservation rate. In other words,
they won’t be willing to lend their money for less than the IORB rate.
Further, if banks see differences between the IORB rate and the federal
funds rate – they will use arbitrage to profit from the difference. And those
transactions will close any significant gap between the IORB rate and the
federal funds rate.
 
For example, if the federal funds rate is lower than the IORB rate,
banks will borrow in the federal funds market and deposit those funds at
the Fed to earn a profit on the interest rate differential. The increase in
demand for funds in the federal funds market will pull the federal funds
rate higher. These transactions will continue until any significant gap
between the IORB rate, and the federal funds rate is closed.

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If the federal funds rate is higher than the IORB rate, banks will
withdraw funds from the Fed and lend in the federal funds market to earn
the higher return. The increase in the supply of funds in the federal funds
market will push the federal funds rate lower. These transactions will
continue until any significant gap between the IORB rate, and the federal
funds rate is closed. So, when the Fed raises or lowers the IORB rate,
arbitrage ensures that the federal funds rate will increase or decrease as
well.
Suppose the economy weakens and employment falls short of
maximum employment. Meanwhile, the inflation rate, which might have
recently been steady around 2 percent, is showing signs of decreasing. The
Fed might decide to use expansionary monetary policy to provide stimulus
for the economy.
i. Setting monetary policy: The Federal Funds rate
The Fed implements monetary policy primarily by influencing the
federal funds rate, the interest rate that financial institutions charge each
other for loans in the overnight market for reserves. Fed monetary policy
actions, described below, affect the level of the federal funds rate. Changes
in the federal funds rate tend to cause changes in other short-term interest
rates, which ultimately affect the cost of borrowing for businesses and
consumers, the total amount of money and credit in the economy, and
employment and inflation.
 
To keep price inflation in check, the Fed can use its monetary policy
tools to raise the federal funds rate. Monetary policy in this case is said to
“tighten” or become more “contractionary” or “restrictive.” To offset or
reverse economic downturns and bolster inflation, the Fed can use its
monetary policy tools to lower the federal funds rate. Monetary policy is
then said to “ease” or become more “expansionary” or “accommodative.”
ii. Implementing monetary policy: The Fed’s policy toolkit
The Fed has traditionally used three tools to conduct monetary policy:
reserve requirements, the discount rate, and open market operations. In
2008, the Fed added paying interest on reserve balances held at Reserve
Banks to its monetary policy toolkit. More recently, the Fed also added

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overnight reverse repurchase agreements to support the level of the federal
funds rate.
Reserve requirements

The Federal Reserve Act of 1913 required all depository institutions to

set aside a percentage of their deposits as reserves, to be held either as cash
on hand or as account balances at a Reserve Bank. The Act gave the Fed
the authority to set that required percentage for all commercial banks,
savings banks, savings and loans, credit unions, and U.S. branches and
agencies of foreign banks. These institutions typically have an account at
the Fed and use their reserve balances to meet reserve requirements and to
process financial transactions such as check and electronic payments and
currency and coin services.

For most of the Fed’s history, monetary policy operated in an

environment of “scarce” reserves. Banks and other depository institutions
tried to keep their reserves close to the bare minimum needed to meet
reserve requirements. Reserves above required levels could be loaned out
to customers. So, by moving reserve requirements, the Fed could influence
the amount of bank lending. Promoting monetary policy goals through this
channel wasn’t typical though.

Still, reserve requirements have played a central role in the

implementation of monetary policy. When reserves weren’t very abundant,
there was a relatively stable level of demand for them, which supported the
Fed’s ability to influence the federal funds rate through open market
operations. The demand for reserves came from reserve requirements
coupled with reserve scarcity. If a bank was at risk of falling short on
reserves, it would borrow reserves overnight from other banks. As
mentioned above, the interest rate on these short-term loans is the federal
funds rate. Stable demand for reserves allowed the Fed to predictably
influence the federal funds rate—the price of reserves—by changing the
supply of reserves through open market operations.

During the 2007–2008 financial crisis, the Fed dramatically increased

the level of reserves in the banking system when it expanded its balance
sheet (covered in more detail below). Since that time, monetary policy has
been operating in an “ample” reserves environment, where banks have had
many more reserves on hand than were needed to meet their reserve
requirements.

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 In these ample reserves environment, reserve requirements no longer
play the same role of contributing to the implementation of monetary
policy through open market operations. In 2020, then, the Federal Reserve
reduced reserve requirement percentages for all depository institutions to
zero.

The Discount Rate

The discount rate is the interest rate a Reserve Bank charges eligible
financial institutions to borrow funds on a short-term basis—transactions
known as borrowing at the “discount window.” The discount rate is set by
the Reserve Banks’ boards of directors, subject to the Board of Governors’
approval. The level of the discount rate is set above the federal funds rate
target. As such, the discount window serves as a backup source of funding
for depository institutions. The discount window can also become the
primary source of funds under unusual circumstances. An example is when
the normal functioning of financial markets, including borrowing in the
federal funds market, is disrupted. In such a case, the Fed serves as the
lender of last resort, one of the classic functions of a central bank. This
took place during the financial crisis of 2007–2008 (as detailed in the
Financial Stability section).

Open market operations 

Traditionally, the Fed’s most frequently used monetary policy tool was
open market operations. This consisted of buying and selling U.S.
government securities on the open market, with the aim of aligning the
federal funds rate with a publicly announced target set by the FOMC. The
Federal Reserve Bank of New York conducts the Fed’s open market
operations through its trading desk.
 
If the FOMC lowered its target for the federal funds rate, then the
trading desk in New York would buy securities on the open market to
increase the supply of reserves. The Fed paid for the securities by crediting
the reserve accounts of the banks that sold the securities. Because the Fed
added to reserve balances, banks had more reserves that they could then
convert into loans, putting more money into circulation in the economy. At
the same time, the increase in the supply of reserves put downward
pressure on the federal funds rate according to the basic principle of
supply and demand. In turn, short-term and long-term market interest rates
directly or indirectly linked to the federal funds rate also tended to fall.

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Lower interest rates encourage consumer and business spending,
stimulating economic activity and increasing inflationary pressure.
 
On the other hand, if the FOMC raised its target for the federal funds
rate, then the New York trading desk would sell government securities,
collecting payments from banks by withdrawing funds from their reserve
accounts and reducing the supply of reserves. The decline in reserves put
upward pressure on the federal funds rate, again according to the basic
principle of supply and demand. An increase in the federal funds rate
typically causes other market interest rates to rise, which damps consumer
and business spending, slowing economic activity and reducing
inflationary pressure.
Interest on Reserves
As a result of the Fed’s efforts to stimulate the economy following the
2007–2008 financial crisis, the supply of reserves in the banking system
grew very large. The amount is so large that most banks have many more
reserves than they need to meet reserve requirements. In an environment
with a superabundance of reserves, traditional open market operations that
change the supply of reserves are no longer sufficient for adjusting the
level of the federal funds rate. Instead, the target level of the funds rate can
be supported by changing the interest rate paid on reserves that banks hold
at the Fed.
 
In October 2008, Congress granted the Fed the authority to pay
depository institutions interest on reserve balances held at Reserve Banks.
This includes paying interest on required reserves, which is designed to
reduce the opportunity cost of holding required reserve balances at a
Reserve Bank. The Fed can also pay interest on excess reserves, which are
those balances that exceed the level of reserves banks are required to hold.
The interest rate paid on excess reserves acts like a floor beneath the
federal funds rate because most banks would not be willing to lend out
their reserves at rates below what they can earn with the Fed.
Overnight Reverse Repurchase Agreements
The interest rate on reserves is a crucial tool for managing the federal
funds rate. However, some financial institutions lend in overnight reserve
markets but aren’t allowed to earn interest on their reserves, so they are
willing to lend at a rate below the interest on reserves rate. This primarily

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includes government-sponsored enterprises and Federal Home Loan
Banks.
 
To account for such transactions and support the level of the federal
funds rate, the Fed also uses financial arrangements called overnight
reverse repurchase agreements. In an overnight reverse repurchase
agreement, an institution buys securities from the Fed, and then the Fed
buys the securities back the next day at a slightly higher price. The
institution that bought the securities the day before earns interest through
this process. These institutions have little incentive to lend in the federal
funds market at rates much below what they can earn by participating in a
reverse repurchase agreement with the Fed. By changing the interest rate
paid in reverse repurchase agreements, in addition to the rate paid on
reserves, the Fed is able to better control the federal funds rate.
 
In December 2015, when the FOMC began increasing the federal funds
rate for the first time after the 2007–2008 financial crisis, the Fed used
interest on reserves, as well as overnight reverse repurchase agreements
and other supplementary tools. The FOMC has stated that the Fed plans to
use the supplementary tools only as they are needed to help control the
federal funds rate. Interest on reserves remains the primary tool for
influencing the federal funds rate, other market interest rates in turn, and
ultimately consumer and business borrowing and spending.

2. Fiscal policy
Fiscal policy is the use of government spending and taxation to
influence the economy. Governments typically use fiscal policy to
promote strong and sustainable growth and reduce poverty. The role and
objectives of fiscal policy gained prominence during the recent global
economic crisis, when governments stepped in to support financial
systems, jump-start growth, and mitigate the impact of the crisis on
vulnerable groups. In the communiqué following their London summit in
April 2009, leaders of the Group of 20 industrial and emerging market
countries stated that they were undertaking “unprecedented and concerted
fiscal expansion.” 
Historically, the prominence of fiscal policy as a policy tool has waxed
and waned. Before 1930, an approach of limited government, or laissez-
faire, prevailed. With the stock market crash and the Great Depression,
policymakers pushed for governments to play a more proactive role in the
economy. More recently, countries had scaled back the size and function

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of government—with markets taking on an enhanced role in the allocation
of goods and services—but when the global financial crisis threatened
worldwide recession, many countries returned to a more active fiscal
policy.
In taxes and expenditures, fiscal policy has for its field of action matters
that are within government’s immediate control. The consequences of such
actions are generally predictable: a decrease in personal taxation, for
example, will lead to an increase in consumption, which will in turn have a
stimulating effect on the economy. Similarly, a reduction in the tax burden
on the corporate sector will stimulate investment. Steps taken to increase
government spending by public works have a similar expansionary effect.
Conversely, a reduction in government expenditure or an increase in tax
revenues, without compensatory action, has the effect of contracting the
economy.
i. How fiscal policy work
Spending and taxes in the United States are largely controlled by
Congress, although the Executive Branch does have a significant influence
on the fiscal policies put into place in a particular administration. Let’s
look at how spending and taxation work in the U.S. economy.
 
Congressional spending comes in two different types: discretionary and
mandatory. Discretionary spending is authorized by Congress through
annual appropriations that are included in the yearly budget. Many
national programs and activities, including defense, education and
transportation programs, are funded through appropriations. Discretionary
spending is subject to rules and processes that Congress puts in place to
ensure that funds are distributed as the appropriations have stipulated. This
is the simplest way to increase spending because it does not require a
special vote.
 
Mandatory or direct spending is spending on entitlement programs and
direct payments to state and local governments as well as people and
businesses. This type of spending is generally authorized by statute. The
three biggest entitlement programs in the United States are Social Security,
Medicare and Medicaid, but there are many other smaller programs that
also rely on mandatory spending. Some of these programs stay in effect
indefinitely, and others are tied to a specific time period, after which they
expire. To increase mandatory spending by increasing benefits payments

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(also called transfer payments), it must be passed by a 60-vote majority in
the Senate, which is more difficult.
 
Taxes in the United States are paid by every-day citizens through
income and capital gains taxes and by corporations through corporate tax.
The federal income tax, the largest source of income for the U.S.
government, is divided into multiple tax rates and brackets that rise
according to income. The government adjusts tax rates annually for
inflation. The Corporate Income Tax is the third-largest source of revenue
for the U.S. government, behind individual income tax and payroll tax.
Tax rates are determined by the Internal Revenue Service.
ii. The effects of fiscal policy
There is a direct effect on the economy. When spending is increased or
taxes are decreased, more money is injected into the economy, which can
help to stimulate growth. When spending decreases and taxes increase, it
can slow growth in an economy that may be growing too fast and causing
unnecessary inflation.
When a government increases discretionary spending, it appropriates
more money towards national programs and activities during the budget
approval process, which provides more jobs, more production, and more
spending on raw goods, manufacturing and materials. Decreased taxes in
the private and corporate sectors free up more income for individuals and
businesses to spend on goods and services, which also stimulates the
economy.
Decreased government spending slows down economic growth because
the government is purchasing fewer raw materials and funding fewer large
infrastructure plans and other projects that add to the economy. Decreased
taxes reduce the amount of income people and corporations have to spend,
which also slows economic growth.
Fiscal policy is often a tricky balancing act for policymakers, and it
doesn't always have the desired effect. Sometimes a policy meant to
stimulate the economy can slow it down over time or lead to undesirable
side effects. 
While an expansionary policy can help boost a flagging economy and
keep it from spinning into a depression in the short term, the long-term
effects can be harmful. Over time, an expansionary policy can result in

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rising interest rates, which can stifle investment spending. It can also
strengthen the U.S. dollar, which can create a trade deficit. In addition, it
can lead to accelerating inflation.
In contrast, a contradictory policy can slow down an economy that
might be growing out of control and help control inflation. Over time, a
contradictory policy can also help manage public debt. However, it can
also add to the effects of a recession or a depression.

3. Fiscal vs. Monetary policy

Monetary policy is the strategy, tools and communications that the Federal
Reserve employ to keep employment high, stabilize prices and moderate
interest rates. The Federal Reserve can use four different tools to help meet
its goals:
- It can adjust the discount rate, the short-term loan interest rate that
Reserve banks charge the commercial banks.
- It can adjust reserve requirements, the amount of money that
Reserve banks must have in cash.
- It can manipulate open-market operations by influencing the buying
and selling of government securities.
- It can change the interest on reserves, which is the amount of interest
that is paid on excess reserves at Reserve banks.
=> Monetary policy is different from fiscal because it has to do with the
actions of the central banks, and it is controlled by the Federal Reserve.
Fiscal policy, on the other hand, has to do with taxing and spending, which
is controlled by Congress.

IV. Results of policies

1. Monetary policy
The CBO report cited above includes a brief analysis of the impact of
the Federal Reserve’s emergency lending facilities on GDP. CBO
estimates the lending facilities will increase real GDP by 0.1% and 0.3%
in 2020 and 2021, respectively. The budgetary costs to the Federal Reserve
are expected to be offset by interest income generated by the programs.
More generally, CBO determined that the lending facilities should increase
confidence and provide a more stable and favorable lending environment,
thereby increasing “overall demand by supporting businesses’ and

19
consumers’ spending, helping increase businesses’ chance of survival, and
preserving production capacity, all of which will help expedite a
recovery.” The emergency lending facilities backed by CARES Act funds
expired at the end of 2020, and the Consolidated Appropriations Act,
2021, prohibited the Fed from reopening CARES Act programs for
corporate bonds, municipal debt, and the Main Street Lending Program.
2. Fiscal policy
The Congressional Budget Office (CBO) published a report on the
potential short- and long-term effects of legislation enacted in March and
April 2020 on the domestic economy. In the short term, CBO projected the
policies enacted would increase real GDP by 4.7% and 3.1% in 2020 and
2021, respectively. In the longer term, CBO expects the policies to
increase the debt-to-GDP ratio, resulting in higher borrowing costs,
dampened GDP, and smaller national income, assuming no austerity
measures are taken. By 2023, CBO projected that GDP would be slightly
smaller than if fiscal stimulus had not been implemented. CBO calculates
that the policies will increase GDP by 58 cents for every dollar they add to
the deficit between 2020 and 2023.
Figure 12 illustrates the quarterly impact of pandemic-related
legislation on real GDP through 2021, as projected by CBO. The largest
impact occurs in the third quarter of this year and decreases in each
subsequent quarter but remains positive through 2021.

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 Figure 13 displays the effects of certain pandemic-related enacted
provisions on personal income as determined by BEA.
The effects are measured as a percentage of total monthly personal
income. The economic impact payments had the largest single-month
impact on personal income of the programs analyzed. In April 2020, the
payments constituted more than 12% of total personal income and were
largely responsible for the 12.2% increase in total personal income in the
same month. This overall increase in personal income was significant,
especially given the unprecedented decreases in employment and GDP in
the same month. Personal income in March 2021 remained higher than
pre-pandemic levels. This increase and maintenance of levels of personal
income, in large part due to pandemic-related legislation, could be
responsible for some of the unusual phenomena happening during this
recession, such as the maintenance of housing demand and the smaller
than usual drop in durable goods spending. For those unemployed
individuals actually receiving the benefits, this percentage will be much
higher because their incomes would be lower than average. Other
programs such as the Paycheck Protection Program contributed relatively
less to total personal income but would also have much larger effects for
those individuals directly receiving the benefits. Despite the amount being
lowered, enhanced unemployment benefits have still contributed
significantly to personal income since July 2020, generally between 1%
and 2%.

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V. Longer-term challenges
1. Inflation challenge
The US economy has recovered quickly from the pandemic but the
bounce back in demand has stressed supply chains and caused inflation to
rise sharply. Inflation in the U.S. has risen to its highest level in more than
40 years. United States Department of Labor data released on July 13
showed that the consumer price index (CPI) rose 9.1% in June compared
to the same period last year and was the fastest increase since November
1981. Meanwhile, compared to May, CPI in June increased by 1.3% due to
rising gasoline prices, housing and food costs.

23
 There is evidence that wages are starting to reflect inflationary
pressures, especially the wages of traditionally lower-paid workers. In the
past 12 months, the largest wage increases have been realized by leisure
and hospitality workers (compensation up 12.4 percent), education and
healthcare workers (5.7 percent), retail trade workers (4.4 percent), and
durable goods manufacturing workers (3.8 percent). While these gains
may be beneficial to lower-income workers in the short run, sustained
large gains could trigger ongoing cycles of wage increases and inflation
more broadly, which could erode nominal gains in wages. Already, many
firms that are increasing salaries for their entry-level workers to $15 an
hour or more are also increasing wages for workers on higher rungs of
their pay ladders in order to maintain company compensation differentials.
This combination of higher wages and rising inflation expectations seems
likely to keep inflation notably above the 1-2 percent range prevalent over
the past decade. Although increases in gasoline and food prices have been
affected by global events, the prices of a broader range of items have also
risen strongly, including housing and transportation. If left unchecked,
these price increases could become long lasting.

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 There is growing evidence, including from the University of
Michigan and the New York Federal Reserve, that consumer inflation
expectations are elevated or rising alongside uncertainty. Once higher
prices become embedded in peoples’ minds in this way, inflation becomes
more persistent and more likely to remain at elevated levels. Indeed, some
economists worry that this process of self-reinforcing rounds of price and
wage increases could become like a vicious circle, as occurred in the
1970s. 
The economy is expected to slow, as the Federal Reserve (the Fed)
continues to tighten monetary policy and COVID economic relief
programs come to an end, bringing core Personal Consumption
Expenditure (PCE) inflation down to the Fed’s 2 percent medium-term
target by late 2023. However, if inflation is more persistent than expected,
the Fed will need to tighten more, which will further slow the economy.

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 The Fed increased its policy rates by 1.5 percent so far this year and is
likely to increase them by another 2 or 2.5 percent in the coming months.
It is also unwinding its holdings of Treasury bonds and mortgage-backed
securities. As a result, the cost of borrowing has significantly increased.
For example, the average fixed rate on a 30-year mortgage has already
risen from 3 percent to between 5 and 6 percent since the start of this year.
At the same time, the government is reining in spending, as a range of
pandemic-era support programs are expiring.  
US economic developments will be impacted by global factors, such as
the Russian war with Ukraine, the ongoing pandemic, and possible
recurrence of shutdowns in China. Also, the longer inflation stays high, the
bigger the risk that inflation expectations move up, which then feeds back
into wages and prices. In that case, the Fed would need to take stronger
action to bring inflation down, raising interest rates and keeping them
higher for a longer period. This would lower growth further and lead to
higher unemployment.
2. Difficulties (Re)Building Workforces in Key Sectors
Surging layoffs in the early months of the pandemic, a large-scale shift
to remote work for about half the U.S. labor force, fluctuations in rehiring
patterns, and other individual work and lifestyle changes have
fundamentally altered the U.S. labor market. Factors impacting the pace of
the return to work include about two million more retirements than
expected during 2020; continuing workplace safety concerns; difficulties
arranging child care; federal unemployment benefits that in some cases
boosted total unemployment compensation to equivalent or superior
compensation to full-time work; and higher-than-usual quit rates as more
workers reconsider their options.
With schools having broadly re-opened this fall and federal
supplemental benefits having ended on September 6, a pickup in rehiring
is likely in the coming months. However, substantial re-sorting in the

26
workforce is likely to continue in coming months and years. For example,
a recent survey of 30,000 workers found that 40 percent were planning to
change jobs in the next six months, and a record-breaking 4.4 million
people quit their jobs in the single month of September 2021. Businesses
continue to report difficulty finding the workers they need, with small
businesses bearing the brunt of labor supply challenges.
Together, these shifts and the widening perception of a skills mismatch
will need to be addressed through creative solutions and new investments
by employers, governments and workers. Employers will need to increase
investments in hiring, training and upskilling, as well as in automation.
The nature of work is also likely to evolve, with more businesses
offering hybrid work options and more favorable terms for workers (more
full-time work, fewer split shifts, more regular hours, more guaranteed
time off, etc.). Governments will be challenged to offer more sophisticated
skill-matching services, better training, and better coordinated services,
such as easier access to necessary housing or nutrition support and
smoother public transportation options for workers. And workers will need
to take advantage of opportunities, such as workplace training,
certification programs, and other skill-building programs, to continue to
progress up the wage scale over time.

3. Increase in Remote Work

While future work patterns are still in flux, it is likely that an increased
portion of workers will permanently work from outside large metropolitan
areas in remote or hybrid work arrangements. In fact, some
experts estimate that between 8 and 20 percent of workdays will be
supplied from home after the pandemic ends, compared with 5 percent
before the pandemic. 
Some have speculated that hybrid work patterns, such as 3-4 days a
week of in office work, may lead more workers to choose suburban or
exurban living locations. This would have implications for the distribution
of job and revenue growth, housing prices, business development, demand
for inner-city transportation networks (including public transportation),
and train and auto infrastructure for commuters between rural or suburban
and urban areas.  For example, one recent study suggests that post-
pandemic remote work will directly reduce spending in major city centers
by 5-10 percent compared to pre-COVID-19 levels.

4. Lower population growth

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 U.S. population growth has been in decline over the last several
decades due to a number of factors, and COVID-19 appears to
have accelerated this trend, at least in the short term. First, COVID-19 is a
public health crisis that has resulted in the death of more than 787,000
Americans. The pandemic also has disrupted personal decisions to get
married, form households, and have children. Researchers and government
sources estimate that COVID-19 caused roughly 5-10 percent fewer births
in 2020 than otherwise would have been expected (a decline of 150,000-
300,000 births below normal levels), and early evidence suggests that
births in 2021 may be down by 15 percent or more from normal levels. In
fact, in 2020, 25 states reported more deaths than births, and it is unlikely
that there will be a significant “catch up” in births in coming years—
data from the Great Recession of 2008-09 shows that the shortfall of births
over that period was never reversed. These birth and death trends may be
even more dramatic in the twelve months of 2021, compared to the
approximately nine months of 2020, as many people have continued to put
off having children and as deaths from COVID are ongoing.
Whether this more rapid decline in population growth continues, or
whether we revert to the longer-term trendline in declining population
growth, remains to be seen. Declining population growth means that
businesses that sell goods and services driven by per capita use—from
food, to toothpaste, to wireless phone service, to haircuts—will have fewer
customers to serve over time. All levels of government will be affected,
with fewer taxpayers but likely with fewer citizens seeking public services
as well. For example, states might see up to 15 percent fewer children
showing up for kindergarten in public schools in 2025, while relatively
high mortality rates among retirees will likely dent demand for services
targeted to senior citizens (which otherwise is expected to increase
because of continued high numbers of Baby Boomer retirements). In
addition, states that already have low annual population growth, including
many states in the Midwest, may continue to struggle to meet employer
needs and to attract new workers and businesses.

5. More geopolitical uncertainty

COVID-19 also has accelerated the rise of global geopolitical tensions.
One particular consequence has been an erosion in economic and
geopolitical relations between the U.S. and China. Disagreements about
everything from the source of the COVID-19 outbreak, to concerns about
China’s more authoritarian political stance (including its stances toward
Hong Kong and Taiwan), have worsened relations. As the two countries

28
have come to view each other more as strategic competitors, both have
become more skeptical of foreign direct investment from each other – and
from other countries, quicker to ban exports of items like critical
technology, and faster to use regulatory and administrative measures to
make it more difficult to do business in the other country. Meanwhile, U.S.
national policy has moved in the direction of shortening supply lines
and promoting more domestic sources of semiconductors, rare earth
minerals, and other critical materials for electric vehicles, batteries, solar
panels, etc.
This dynamic is likely to result in fewer business deals between the two
countries over the next few years, fewer trade missions between the two
countries, fewer Chinese tourists coming to America, and less Chinese
interest in buying U.S. real estate. There may, however, be opportunities
for states to attract more reshoring investments as industries shift to more
domestic manufacturing.

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VI. Conclusion
The COVID-19 pandemic has created both a public health crisis and an
economic crisis in the United States. The pandemic has disrupted lives,
pushed the hospital system to its capacity, and created a global economic
slowdown. The economic crisis is unprecedented in its scale: the pandemic
has created a demand shock, a supply shock, and a financial shock all at
once. The US economy has taken a long time to recover since it is
dependent on human resources, which have been severely reduced in
recent years. Despite numerous disadvantages, the United States appears to
have quickly limited its disastrous impacts.

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VII. Individual opinion
1. Lê Hồ Kim Anh – BABAWE20184
On account of the lopsided endlessly effect of COVID-19, almost
certainly, the recuperation of the US economy will be lopsided, prompting
the requirement for more designated boost measures. As it connects with
COVID-19, worries about developing obligation and huge obligation to-
GDP proportions. Improvement bundles ought to be facilitated, and
deficiency decrease measures ought to be taken as soon as possible. What's
more, pointless boost bundles will be killed in view of transient
advantages and on spending shortages that will increment and give long
haul steadiness as people in the future are compelled to pay for the
monetary choices of today. In view of the CBO report, as of February
2021, genuine GDP is probably going to stay beneath potential through
2025, and joblessness will in any case ascend for a year to come, tumbling
to 5% by 2023 and under 4% in 2026. In view of these, it tends to be seen
that the emergency from the COVID pandemic has attributes like past
downturns, so we should be good to go for future emergencies. Depend on
CBO's conjectures and gain as a matter of fact and examples for this
plague. The state and government should oversee well and concoct sound
approaches to prepare capital, which has been enormously ailing in the
COVID-19 emergencies that have happened in various waves.

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 2. Trần Bích Khuê – BABAWE20154
In general, the Covid-19 pandemic has greatly impacted the trade and
investment activities of countries around the world and the United States.
Social distancing causing a decline in the value of exports and imports of
goods and services, accompanied by a decrease in income, reduced
consumption and stalled export and import activities. As a result, the
supply and demand for goods on a global scale also stagnated and the
volume of world trade in goods decreased significantly, continue down in
the next months. To revive the economy, the United States announced
large financial bailout packages with the total value of economic stimulus
packages nearly $ 3, 000 in the world, the largest in the world (including
the $ 2. 200 billion package). The government has made timely policies to
take steps to support the enterprise and the people overcome the
difficulties of the covid - 19 epidemic. These economic policies helped the
United States to better withstand the health crisis, to maintaining credit for
households and businesses in the context of the economy is heavily
affected by the Covid - 19 epidemic.

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 3. Nguyễn Thị Thanh Thảo – BABAWE20133
Over the past 10 years, along with the recovery of economic growth
momentum (except for 2020 which is a year especially affected by the
Covid-19 pandemic), the banking industry in general and monetary policy
have made significant contributions. remarkable for macroeconomic
stability and growth support. For now, it's clear that the job market is
strong and prices are high, but as interest rates continue to rise, that
ambiguity could become even more confusing and lead to "misguided"
monetary policy recommendations. The Fed tends to raise or lower interest
rates at its scheduled meetings. They explain their decisions with as much
information as possible and provide economic projections to prepare
Americans for what is to come.
An increase in US interest rates will significantly impact the development
of Asian economies, through trade, exchange rates and financial market
channels. Higher interest rates will constrain aggregate demand as well as
reduce demand for Asian exports. Higher yields on US bonds and assets
will attract international investment and increase demand for the dollar.

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 4. Phạm Ngọc Thủy Tiên – BABAWE20183
In the context of the global pandemic – covid 19, as well as all parts of
the world, a powerful country like the U.S was also in a situation of
recession, and economic hardship. Social distancing has stagnated and
frozen many sectors such as aviation, tourism, hospitality… leading to an
increase in unemployment and a decline in GDP. The unemployment rate
soared to an all-time high of 14.7% in April 2020. However, the U.S
government and The Federal Reserve have adopted policies to respond
promptly. There are two main policies to mention: monetary policy,
controlled by The Fed, and the president and Congress adjust fiscal policy.

- Monetary policy: The Fed has cut interest rates to encourage

companies to maintain production and investment, thereby
recovering the economy. The Fed also implements a number of
emergency funding programs to support people.
- Fiscal policy: by cutting taxes, the government will motivate people
as well as firms to consume and invest more, stimulate demand to
help boost the economy.
Still, there are downsides to monetary policy. Evidence shows that
inflation in the U.S has risen to its highest level in more than 40 years. If
left unchecked, inflation will become more persistent and more likely to
remain at higher levels, resulting in the dollar depreciating, exports falling,
and economy slowdown.

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VIII. References
https://www.un.org/development/desa/dpad/publication/un-desa-policy-brief-
no-129-the-monetary-policy-response-to-covid-19-the-role-of-asset-purchase-
programmes/
https://mof.gov.vn/webcenter/portal/btcvn/pages_r/l/tin-bo-tai-chinh?
dDocName=MOFUCM176132
https://crsreports.congress.gov/product/pdf/R/R46606

https://www.whitehouse.gov/wp-content/uploads/2022/04/Chapter-3-new.pdf?
fbclid=IwAR3k0FgytlJ2KW62wbKhKcTowigCJyftCB99OEfxPtGgaeMxIGAi
EQzAhO0

https://repositorio.cepal.org/bitstream/handle/11362/45984/1/S2000540_en.pdf

https://en.wikipedia.org/wiki/Economic_impact_of_the_COVID-
19_pandemic_in_the_United_States#Financial_market_impacts

https://www.brookings.edu/research/ten-facts-about-covid-19-and-the-u-s-
economy/
https://usa.usembassy.de/economy-policy.htm 

https://www.federalreserveeducation.org/about-the-fed/structure-and-
functions/monetary-policy 

https://www.frbsf.org/education/teacher-resources/what-is-the-fed/monetary-
policy/ 

https://www.itsuptous.org/US-fiscal-policy

https://www.imf.org/en/News/Articles/2022/07/11/CF-US-Economy-Inflation-
Challenge
https://www.nga.org/center/publications/jobs-and-the-economy-in-the-u-s-in-
the-wake-of-covid-19-key-issues-facing-governors/
https://www.mercatus.org/publications/covid-19-crisis-response/covid-19-and-
future-united-states-world-leader

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