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Macroeconomic Consequences of a Lockdown and Its Policy Implications

The unprecedented lockdown has pushed economies into dire straits and also raised hopes that they would soon rebound to the old normal as soon as the pandemic is contained. But this is unlikely as the deterioration in the resource position and slump in demand can be reversed only by discarding the usual macroeconomic framework and by using a different approach and implementing out-of-the-box solutions. This analysis enables us to understand what policies may or may not work during and after a lockdown and the role of a stimulus and its magnitude.

The ongoing pandemic has left economies around the world in dire straits. To slow down its spread, countries have had to implement lockdowns that suddenly halted production. In India, not even 25% of the economy could function during the lockdown (Kumar 2020a), producing only the most essential goods and services. So, the rate of growth was -75% compared to the same month last year. Consequently, businesses have lost incomes and a large number of workers have lost work and/or did not receive wages (Indian Express 2020). Many of those still employed have faced cuts in wages. Business losses are a result of plummeting revenue while fixed costs have to be met.

Businesses have been arguing for an end to the lockdown. It is implicit that this would lead to more deaths, but this is taken as a necessary cost. They have asked for concessions to increase their profitability, like relaxation in labour laws and have lobbied for cash assistance to cut their losses.

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Updated On : 28th Sep, 2020

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