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  • IMT Covid19

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    Proshanjit Dey
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    The document discusses the economic impacts of the COVID-19 pandemic. It describes how the shutdown in China in early 2020 reduced global demand for oil and caused prices to collapse. In response, OPEC agreed to cut oil production by 9.7 million barrels per day to support prices. For India, the pandemic is likely to cause cyclical unemployment and a U-shaped recession as recovery takes a long time. The government should adopt policies to support workers, businesses, and MSMEs. The RBI should pursue measures like easing liquidity constraints, cutting repo rates, relaxing NPA norms, and using reserves to boost the economy.

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    IMT COVID

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    The document discusses the economic impacts of the COVID-19 pandemic. It describes how the shutdown in China in early 2020 reduced global demand for oil and caused prices to collapse. In response, OPEC agreed to cut oil production by 9.7 million barrels per day to support prices. For India, the pandemic is likely to cause cyclical unemployment and a U-shaped recession as recovery takes a long time. The government should adopt policies to support workers, businesses, and MSMEs. The RBI should pursue measures like easing liquidity constraints, cutting repo rates, relaxing NPA norms, and using reserves to boost the economy.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    117 views5 pages

    IMT Covid19

    Uploaded by

    Proshanjit Dey
    The document discusses the economic impacts of the COVID-19 pandemic. It describes how the shutdown in China in early 2020 reduced global demand for oil and caused prices to collapse. In response, OPEC agreed to cut oil production by 9.7 million barrels per day to support prices. For India, the pandemic is likely to cause cyclical unemployment and a U-shaped recession as recovery takes a long time. The government should adopt policies to support workers, businesses, and MSMEs. The RBI should pursue measures like easing liquidity constraints, cutting repo rates, relaxing NPA norms, and using reserves to boost the economy.

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    © All Rights Reserved
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    of 5

    COURSE: BUSINESS ECONOMICS

    PROJECT: COVID-19: The Global Shutdown


    Instructions for the submission:
    ● Please maintain the following: Font - Times New Roman, Font Size - 12, Line Spacing -
    1.5

    Name Proshanjit Dey

    Question 1

    Question 1A: What made OPEC decide to cut the oil supply? What was the desired outcome
    of this decision? What was the change in the supply and demand curves of oil and the
    subsequent market equilibrium? Analyse the changes both before and after the decision to
    reduce supply with respect to price change and shift in demand curve.

    Answer: The shutdown in China due to the pandemic in early 2020 sunk a demand in fossil
    fuels. The Organization of the Petroleum Exporting Countries (OPEC) reached an agreement
    with oil-producing countries to cut 9.7 million barrels a day from May 2020. Oil prices
    collapsed to a historic low, and markets quickly followed. Central banks undertook massive
    efforts to keep the ensuing recession from spiraling further.

    The desired outcome were that with cut in production would in turn help protect markets from
    the record surplus that had resulted from a worldwide collapse in demand due to lockdown.
    Lack of demand for commodities affected natural resource demand like oil products. Oil prices
    fell by -14.7% (Nikkei) as a result of global trade volume contraction between 13-32%
    compared to previous year.

    Question 1B: What type of market (market structure) does OPEC operate in? What are the
    three key features of such a market structure? (2 + 3 marks)
    Ans: OPEC refers to a group of 13 of the world’s major oil exporting nations. The body is a
    kind of cartel that sets the oil prices in an effort to standardize the price of oil on the world
    market, in order to avoid fluctuations that might effect the economies of both producing and
    purchasing countries.

    1. Co-ordinate and unify petroleum policies among Member Countries


    2. Secure fair and stable prices for petroleum producers
    3. Create an efficient, economic and regular supply of petroleum to consuming nations
    4. Deliver a fair return on capital to those investing in the industry.

    Question 2

    Question 2A: Assume that the business was operating at the profit maximising level of output
    before the Covid-19 outbreak. Each article brought in ad revenue of €375.

    Determine how many articles was the business producing? (2 marks)

    Ans: The business was producing 660 articles

    What was the total profit? (1 mark)

    Ans : Total Profit = Total Revenue – (Fixed Cost + Variable Cost)

    = €247500 – €165000 = €82500

    Explain conceptually how you arrived at the profit maximizing level of output. You do not
    need to show exact calculations. (3 marks)

    Ans : Total profit is maximized where marginal revenue equals marginal cost
    Question 2B: On 9 March 2020, Italy went into lockdown. As a result, you had to shut down
    your office and adopt a work-from-home policy. This eliminated your fixed costs of €8,000.
    At the same time, your ad revenue per article fell to €250. This was because all companies
    suddenly reduced their advertising spending.

    How many journalists would you have to fire? Assume that you only care about maximising
    profits. (2 marks)

    Ans : None. Since Marginal Revenue = Marginal Cost

    Both cases, there is no delta change. (€3000)

    What is your new total profit? (1 mark)

    Ans: There is no profit. Total Revenue – Total Cost = €165000-€165000 = 0

    Why did you fire the journalists? Explain your answer conceptually. You do not need to show
    exact calculations. (3 marks)

    Ans: Did not require to fire any journalist since marginal revenue = marginal cost. There was
    no loss.

    Question 3

    Question 3A: What type of unemployment would a country like India experience from such a
    pandemic? Please provide an explanation. (4 marks)

    The COVID 19 pandemic had impacted the country severely in many ways, the current impact
    had led to cyclical unemployment due to economic downturn (which may exacerbate to
    structural unemployment if the current situation is allowed to persist) . This is a result of
    insufficient demand for goods and services. This has impacted the construction,
    manufacturing, and contact-intensive services (i.e., trade, transport, and hospitality).
    Question 3B: What type of recession would be caused by such a pandemic? Provide an
    explanation.

    Ans: Recession is “a significant decline in economic activity spread across the economy,
    lasting more than a few months, normally visible in real GDP, real income, employment,
    industrial production, and wholesale-retail sales.

    There could be many types of recession, V, U, W and L-shaped recessions compare, and how
    they might apply to the COVID-19 crisis

    In India, we are likely to face a U shaped recession, wherein it would take a long time for the
    recovery to happen.

    Question 4

    Question 4A: What type of macroeconomic policy should the Indian government adopt after
    such a crisis? Mention the policy measures to be undertaken clearly along with explanations.
    (3 marks)

    Ans: Due to the measures adopted to prevent the spread of the Coronavirus Disease 2019
    (Covid-19). This is causing aggregate demand to collapse across the globe with widespread
    supply chain disruptions, as some people stay home, others go back to their villages, imports
    are disrupted, and foreign travel is stopped. This will negatively affect production in almost all
    industries.

    Some of the key policy measures to be undertaken by the Indian Government are the
    following;

    1. The first measure must be to protect the workers in the informal sector, who will be
    badly affected, and yet have little savings to tide them over the shock.
    2. Support the organized sector by making the banks somewhat less risk averse in their
    overall lending, while preserving their authority to distinguish between viable and non-
    viable firms. Government could also improve corporate cash flows by speeding up
    GST refunds and delaying payments of corporate taxes.
    3. Medium, small and micro enterprises (MSMEs) will need special help. The
    government’s priority should be to pay the large amounts of accumulated arrears to the
    MSMEs, reportedly in billions of rupees. This will be an immediate infusion of cash,
    and encourage banks to continue to finance them.

    Question 4B: What type of macroeconomic policy should the Reserve Bank of India adopt
    after such a crisis? Mention the policy measures to be undertaken clearly along with
    explanations.

    Ans: RBI is carrying out multiple pen market operations and repo rate auctions to provide long
    term liquidity, the situation though warrants more concrete measures and macro-economic
    policy to curb the impact of the prolonged impact of the COVID 19 crisis.

    1. Easing Liquidity: Provide credit to ailing businesses and yet be cautious with high
    NPAs.
    2. Repo-Rate Cut: Central banks may need to repo rate as this acts as an incentive for
    banks to borrow from the central bank. This ultimately increases the money supply in
    the economy.
    3. NPA norms relaxation: Indian financial sector may need some relaxation including a
    deferment of 90 days in NPA classification criteria, this will give the banking system
    some relief which is already under capital and battling bad debt crisis.
    4. RBI reserves : The RBI has close to USD 490 billion worth reserves which can be used
    to provide liquidity in the system

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