Expected Changes in the Economy

Due to the ongoing events, especially the outbreak of Coronavirus, the economy is expected to change. The stock markets, private sectors, manufacturing sectors, among others, are likely to be affected. The purpose of this paper is to critique the article ‘Will the Coronavirus Cause a Recession? Keep Your Eye on the Barbershop’ by Ben Casselmanon TheNew York Times journal. The paper will analyze the changes that economists expect in the economy based on the article..

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According to the article, the Coronavirus outbreak has shaken the market of stock and affected the supply chains all over the world (Casselman, 2019). Despite that there have not been identified as economic damages so far, economists still expect that a recession is expected. The article, however,  asserts that a downturn is possible if the disease spreads beyond the travel, manufacturing, and other sectors that the disease affects. The disease has already caused some companies to be closed, events and flights canceled, some cities in Europe and Asia nearly shutting down, and private companies such as United Airlines, Mastercard, Apple, among others, warning that profits will be hurt.

The article indicates that there is an expected reduction in economic growth by a full percentage point this year (Casselman, 2019). A recession will lead to job cuts, reduced income and spending, and further unemployment. The article, however, asserts that the changes will only happen if the governments and the central banks do not intervene to kick start growth and if the spending of consumers drop and businesses respond through reducing investments and laying off workers.

Price Level                                                  LRAS

AS

PY0

PY1

AD1      AD0

Y1       Yf

Recessionary gap                               Real GDP

Due to the spread of the Corona Virus, people might stop going to places like restaurants, which will reduce revenue and hence layoff of employees. The laid-off will reduce their spending leading to a reduction in the demand. Those who are left employed also fear that they will be laid off, also reducing their spending. The demand for a wide variety of products will decrease. The demand curve shifts from AD0 to AD1. The real GDP also reduces from Yfto Y1. Prices also reduce from PY0 to PY1.

Due to reduced revenue by the companies, businesses will bounce back; hence investment will also decrease. Reduced investments mean that the businesses will not employ workers and, to some extent, will reduce the number of employees by laying them off. The income of the employees will decrease, which will lower their spending, reduce demand, and hence the prices.

The article indicates that a disruption in the supply chain due to the disease on transport can make it difficult for manufacturers to operate due to a lack of materials and parts. The retailers would also not be able to stock their stores (Casselman, 2019). With nothing to offer to the consumers, employees would be laid off, which would mean the same cycle of job cuts and reduced consumer spending.

I agree with the article that in the coming months,a recession will be experienced. Even though the economy has been stable for sometimes now, with unemployment kevels being low, inflation tamed, and GDP increasing, the economy cannot be able to maintain that for an extended period with many sectors, especially the transport sector being affected. The Virus outbreak has resulted inthe cancellation of flights and travel, which would mean a reduced supply of products. People would also be afraid of going outdoors, which would mean no business operations. Reduced business operations and quantity of products would lead to laying off of workers, reduced income, reduced demand, and spending and finally, the prices of goods. The article has clearly explained the changes in events adequately, making it understandable by even the average literate person.

References

Casselman, B. (2019, March 3^rd). Will the Coronavirus Cause a Recession? Keep Your Eye on the Barbershop’. The New York Times. Retrieved from https://www.nytimes.com/2020/03/03/business/economy/coronavirus-recession.html