The Impact of the COVID-19 Epidemic - Essay Sample

Introduction

The COVID-19 epidemic has devastated the economies of various affected countries. Just like other countries, the impacts of COVID-19 extend to a significant proportion of American citizens across the state. COVID-19 containment measures, including lockdowns and quarantine activities, have significantly impacted the performance of the United States' economy, precisely pushing it into a depression. As a result of the epidemic, the United States is experiencing a tougher economic state than ever recorded in history. This paper focuses on an overview of the impact of the COVID-19 epidemic on American citizens' consumption while highlighting various interconnected economic aspects.

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A depression in a country's economy is characterized by a decline in the demand for goods or services, forcing businesses to close down due to the continuous records of losses. The decline in demand is steered by the steady reduction in the consumption of commodities by the American citizens who are impacted by the epidemic (Chen et al. 3). The unemployment level can also determine depression in a country. It is assumed that a consumer's consumption rate can be determined by the individuals' salary scale or wage rates. However, since the onset of the country's epidemic, approximately 3,000,000 American citizens have lost their jobs (McKibbin et al. 8). This high figure depicts an economic depression, which calls for the need for strategies to revive the country's economy. Consequently, the unemployment rates in America attributed to the impact of the COVID-19 epidemic are anticipated to escalate even further to exceed the economic recession recorded in 2008 (McKibbin et al. 9). The rise in cases of COVID-19 infection and the decline in consumption rate makes it challenging to determine when the country will realize recession in the economy.

Gross Domestic Product

Depression in a country's economy reduces its Gross Domestic Product. Closure of businesses in a country during an economic depression reduces the nation's GDP. Recent reports on the economic state highlight that the COVID-19 epidemic has devastated the Gross Domestic Product of the United States' economy; analysis was conducted by focusing on the impact of the COVID-19 epidemic on various industries and the production sector of the economy (McKibbin et al. 6). The economy of the United States relies on the consumption rates of its citizens since more than 70% of the country's GDP is accumulated from consumption (Chen et al. 3). Containment measures implemented in the American states, including lockdowns and quarantines, have considerably reduced American citizens' consumption rates due to the change in consumers' purchasing habits (Routley n.p). Most individuals are currently focusing on maintaining a stable financial stream to support consumption during the epidemic and to remain afloat.

Inflation and Consumer Price Index

CPI and inflation are the two most affected economic statistics forms in the U.S due to the recent pandemic. First, it has become almost impossible to compile CPI within the current economic conditions since things are transforming. There exist huge discontinuous changes in economic conditions during this epidemic. These changes create a lot of unprecedented challenges in compiling and interpreting CPI statistics. Following such an analysis, determining inflation with respect to CPI is only possible through economic approximation. The living index (COLI) concept provides sufficient proof to believe that Covid-19 has affected the economy and CPI. An approximation of the COLI framework shows that consumer spending patterns have reduced, providing sufficient proof that living costs have increased and risen.

Apart from the conceptual framework, the practical framework also proves that CPI has been affected by the Covid-19 epidemic. There are issues associated with the epidemic that directly affects the CPI and inflation of the U.S. Practices like disappearance of products and closure of food outlets provide proof that the CPI of the county has been affected. This practical relevance can be associated with factors caused by the epidemic, including continuous lockdowns, advice to citizens to stay at home, and maintaining social distancing.

Aggregate Demand, Supply, and Philips Curve

Challenges such as economy disequilibrium and low supply of money are currently being faced by most countries worldwide due to the impacts of COVID-19. Like other impactful events, the COVID-19 epidemic has significantly impacted on the demand and supply in America's economy. The lockdown has created a decline in demand in the economy. Demand in an economy rests on essential consumer goods due to little disposable income of households (Bekaert 145). Similarly, the epidemic has caused a decline in supply in the economy of this state. The epidemic has impacted the supply chains of commodities between industries and international trade in general. Generally, the epidemic has impacted the aggregate demand and supply of this economy.

The epidemic has facilitated unemployment in the economy. A Philips curve can be used to show the connection between the nominal wage and unemployment rates (Keogh-Brown et al. n.p). The curve shows fluctuations in the wage and unemployment rates in an economy. Increase in wages in an economy increases the rate of unemployment due to conflict of inflation. The COVID-19 epidemic has impacted the economy of the U.S. by increasing the prices of commodities (Keogh-Brown et al. n.p). With the increase in costs, consumption of commodities declines due to little disposable income held by households. Capitalists are not willing to pay higher wages for labor while workers are not willing to work at lower wages. Therefore most Americans are leaving work. The economic situation arising from the impact of COVID-19 has devastated livelihood of most households.

Policy Proposal

The policy proposal is geared towards developing strategies to combat the impact of the COVID-19 epidemic on Americans' consumption and the entire economic state. The epidemic will affect supply and other economic elements, including a decline in demand and revenue, caused by the economy's overall impacts. Consumers will buy fewer goods and services due to the fright of potential exposure to financial stress. Consumers will prefer consumption of essential commodities such as food and housing and avoid non-essential things such as airline tickets. With the increasing cases of infection of the coronavirus in the state, it is foreseeable that consumers will retract from purchasing certain goods and services to increase savings. The disastrous impact of COVID-19 is forcing businesses to close, and workers would receive less money than expected, thereby reducing their disposable income (McKibbin et al. 4). The reduction of disposable income reduces the demand for consumer goods. A decline in demand for goods and services subsequently affects the supply of such commodities. The impact of the COVID-19 epidemic on consumption, and the entire economy of the United States, creates the need for policymakers to counter the economic problem. Policymakers should conduct diligent analysis and develop steps to ensure businesses and the entire interconnected elements of the economy are stable. Therefore, the following policies are viable to revive the consumption rate of American citizens if diligently implemented.

Generally, economic discrepancies arising from epidemics like in this case, COVID-19, alter economic growth. Consumption of American citizens forms the backbone of the state's economy. The high prices of commodities arising from the impact of the epidemic on various interconnected components of the economy cause decline in consumption (Andres and Christian n.p). Therefore, consumers shift their disposable income to only essential commodities. Thus, the governments should subsidize the production costs of essential and non-essential commodities to increase their consumption during this epidemic period (Andres and Christian n.p). Subsiding the costs of production reduce the prices, thereby improving demand.

Calm Financial Markets

The COVID-19 epidemic is steadily straining the financial markets in the U.S. This makes other sectors of the economy more volatile. The Federal Reserve should adopt various disposable tools to revive the economy, including lending authorities to financial investors and the production sector. Through financial institutions such as banks, the government can reduce interest rates, reducing the cost of borrowing on loans. Individuals can use loans to finance their projects to generate income (Andres and Christian n.p). These strategies can help increase disposable income for households since increased disposable income increases the demand for commodities and, consequently, increases consumption.

Conclusion

The impact of COVID-19 is massive and rests in both the health sector and individuals' consumption in any country. As a result of the epidemic, the United States is experiencing a tougher economic state than ever recorded in history. It is evident that the COVID-19 epidemic impacts on consumption of American citizens. This situation calls for the development of various policies that can revive the country's declining consumption rate when effectively implemented. The government should steer economic policies towards reducing the impact of the epidemic on households and vulnerable populations and calm financial markets. The government should also inject more resources into consumption and economic development sector.

Works Cited

Bekaert, Geert. Aggregate Demand and Aggregate Supply Effects of COVID-19: A Real-Time Analysis. Federal Reserve Board, 2020:
https://web.unicz.it/uploads/2020/06/covideconomics25.pdf#page=146

Chen, et al. The Impact of the COVID-19 pandemic on consumption. Learning from High Frequency Transaction Data, 2020.
https://bfi.uchicago.cn/wp-content/uploads/2020/04/Qian_COVID-Consumption-200414.pdf

Keogh-Brown, Marcus R., et al. The Impact of COVID-19, Associated Behaviours, and Policies on the U.K. Economy. A Computable General Equilibrium Model." SSM-Population Health, 2020. https://www.sciencedirect.com/science/article/pii/S2352827320302883

McKibbin, et al. The Economic Impact of COVID-19. Economics in the Time of COVID-19, 2020: https://www.incae.edu/sites/default/files/covid-19.pdf#page=52

Piyapromdee, et al. The Income and Consumption Effects of COVID-19 and the Role of Public Policy. 2020: https://www.pier.or.th/wp-content/uploads/2020/06/pier_dp_141.pdf.