The global economy has shifted from a mostly growing economy into a severe, almost life-threatening recession or even depression within of weeks and months. The aim of this term paper is to show the real impacts of the Corona crisis on the economy. Especially the impacts on demand and fiscal policy reactions are described in this term paper.
The wealth of a country depends, among other things, on the overall economic situation, which is usually defined as the business cycle. Good indicators of an economic situation are generally indicators such as the employment rate, the unemployment rate, prices and development of interest rates, sales and capacity of utilization. The pandemic has completely changed all areas of life overnight including the world economy. In addition, to protect of people and address issues of mobile working, new products had to be developed very quickly, for politicians to make current assessments and decisions. The exceptional circumstances have posed challenges to all and raised very similar questions for humanity: what will be the consequences of the pandemic for the economy, for international cooperation in education, academic research, and culture?
At a glance
- Grade: 1.7 (1.0 is the best grade)
- Compares GDP growth across Germany, France, the United Kingdom and the US
- Explains the IS-LM model alongside business-cycle phases
- 24 sources in the bibliography
Table of Contents
1 Introduction
1.1 Issue and objectives of the thesis
1.2 Structure
2 Background information
2.1 Definition of COVID-19 pandemic
2.2 Business cycle and IS-LM Model
2.3 Economics before the COVID-19 pandemic
3 Effects of the Corona crisis
3.1 Corona crisis versus global financial crisis
3.2 From global health crisis to recession – impacts on economy
3.3 World trade impacts
3.4 Government support in response to the COVID-19 pandemic
4 Final assessment
4.1 Summary
4.2 Conclusion and outlook
Objectives and Topics
This thesis examines how the COVID-19 crisis affected the global economy, with particular attention to demand and fiscal policy responses. It asks how the health crisis developed into an economic downturn and how governments responded.
- Business cycles and the IS-LM model
- Economic conditions before the pandemic
- Comparison with the global financial crisis
- Demand, supply chains and world trade
- Government support and fiscal deficits
Excerpt from the Book
3.2 From global health crisis to recession – impacts on economy
Limitations in travelling and trading have led to decrease in export numbers. For example, the value of exports in Germany decreased by 0,7% and imports by 0.6% compared to the same month a year ago. In addition, international supply chains were destroyed, global demand of products and services slowed down and investments were postponed or canceled. More than 10 million people in Germany were registered as short-time-workers at the Federal Employment Agency. Not only did the number of short-time-work increase, the unemployment rate also rose internationally. In France, the unemployment rate has risen from 7% to 10% within two months, in Spain from 14% to 19% and in Italy from 6% to 12%. The fact that the German figure has remained so low by international standards has long-term reasons and is due to the short-time work introduced, which has prevented the increase. The experience of the preceding economic and financial crisis was that primary macroeconomic conditions were determining factors for influence of a crisis on the market economy. Financial systems with greater leverage, stronger credit growth and higher short-term debt tended to suffer from a larger effect on economic activity in a financial crisis. The central bank reserves and past movements in the real exchange rate were two leading indicators in the crisis performance. Less crisis damage occurred in countries with a better capitalized banking sector, lower loan-to-deposit ratios, high foreign exchange rate, a current account surplus and low levels of growth rates of private sector credit-to-GDP. However these economies also featured a low level of financial openness and less exposure to US-creditors. Commercial banks have managed the crisis well, at least until the end of 2020. One example are the Swiss banks, which had surprisingly low accruals ratio in comparison with the real estate crisis, which took place at the beginning of 1990. The reason for this is that the Corona crisis is more a supply and demand crisis. As the state loan commitments and guarantees rescued many companies temporarily and the banks were therefore hardly taking any financial risks.
Chapter Summaries
1 Introduction: The opening chapter presents the economic context, the thesis’s objective and its structure.
2 Background information: This chapter defines the pandemic, introduces the business cycle and IS-LM model, and describes economic conditions before COVID-19.
3 Effects of the Corona crisis: The main chapter compares the pandemic with the financial crisis and discusses recession, world trade and government support measures.
4 Final assessment: The final chapter summarizes the discussion and considers economic recovery and future challenges.
Keywords
COVID-19, global economy, demand shock, supply shock, fiscal policy, recession, business cycle, IS-LM model, world trade, supply chains, government support, financial crisis, economic recovery
Frequently Asked Questions
What is this thesis about?
It examines the economic effects of the COVID-19 crisis, especially changes in demand and government fiscal responses.
What are its central topics?
Its main topics include business cycles, recession, international trade, supply chains and government support.
What is the primary objective?
The thesis aims to show the economic impacts of the pandemic and describe the associated demand effects and fiscal policy reactions.
What research method does the author use?
The author draws on published literature, reports and economic indicators to describe and compare the crises and policy responses.
What does the main chapter cover?
It compares the pandemic with the global financial crisis and considers recession, world trade and government support.
Which keywords characterize the thesis?
Key terms include COVID-19, demand shock, fiscal policy, recession, supply chains and world trade.
How is the global financial crisis used in the discussion?
It provides a point of comparison for economic growth and policy responses during the pandemic.
Which government support measures are discussed in relation to Germany?
The discussion includes KfW loans, direct grants, recapitalizations, guarantees and short-time work.
- Quote paper
- Seda Kaygusuz (Author), 2021, The Corona crisis. Global demand shock and fiscal policy reaction, Munich, GRIN Verlag, https://www.grin.com/document/1420335
