Corona virus (COVID-19) has taken the world like a storm.

“This is an economic tsunami,” Mark Zandi, chief economist at Moody’s Analytics, told me. Social
distancing is economic distancing. We are telling people to cease going to stores, to restaurants, to
workplaces. We are insisting they stop supplying their labour, making their goods. To slow a pandemic, we
are forcing a recession, perhaps a depression. [Source: Ezra Klein, Vox, 23 Mar 2020]
Discuss the likely economic impact of COVID-19 pandemic on the Australian economy by using
recent macroeconomic indicators whilst critically evaluating the role of fiscal policy as a stabilization
tool in a crisis like this.
Background Information
Australia has experienced an unprecedented economic growth, achieving the longest economic expansion on
record (28 years) without a recession. It also escaped the Global Financial Crisis at the end of the mining
boom relatively unscathed. This unprecedented economic story is about to topple by an unprecedented health
crisis that could drag the Australian economy into a recession for the first time in 28 years. Or will it extend
to a depression, as the economist, Mark Zandi is alerting? Australian economy has been facing several
structural issues such as the stagnant wage growth rate, a sluggish economy, housing affordability, rising
household debt, a rapidly declining manufacturing sector, and concerns of job security caused by mass
automation. How does a pandemic impact the households, businesses, government spending and foreign
trade? What does this impact mean for GDP, unemployment rate, and the budget balance? In this economic
environment, the role of macroeconomic policy cannot be ignored. Particularly, the role of recent stimulus
packages to combat the effects of Corona virus pandemic. In this essay, you will discuss the impact of the
pandemic on the economy by assessing macroeconomic indicators and critically evaluating the role of fiscal
policy as a stabilization tool of a modern economy.

Sample Solution

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