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The coronavirus crisis caused the income losses generated by the shock and the automatic expansion of some safety net programs would have led to large increases in the federal budget deficit. But the correct policy response to a shock like the coronavirus is to push deficits even larger than they would go on their own by providing expansions to relief and recovery efforts. There are some who seem more concerned about the rise in federal budget deficits and public debt than by the rise in joblessness and losses of income generated by the shock. But prioritizing the restraint of debt in coming years over the restoration of pre-crisis unemployment rates is bad economics.

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In the light of US current situation, lower economic output, when corona started, the economic output was relatively lower due to the pandemic effect, which shrieked the economy, by shifting AD to the left and moved current output inner as shown in PPF as shown, which caused slower inflation and higher unemployment.

That is for sure a problem, since the lower economic growth, namely recession, can cause lower standards of living due to less income, lower BC and CC.

Accordingly, since during recession the economy cannot recover by itself, what the government did was intervention by demand side expansionary policies. First, monetary policy was implemented by reducing interest rate to stimulate economic activities, in tern investment increased, which contributed right-shift of AD as one of the components but not as efficient due to liquidity trap.In the meantime, as deficits are both inevitable and necessary in light of the current pandemic crisis, because if the situation is left unsolved, is can cause  depreciation in USD, which further adds up to higher cost of borrowing.

Therefore US government if continue to loan, so that fiscal policies are used to shift AD to the right by increasing government spending. Although, it can presumably end up at $4.3 trillion deficit this fiscal year, in return, it can be translated to 20.8% of the country’s GDP and shifted AD back to the right as shown in the graph, aiming at closing the deflationary gap, so that standards of living can improve and unemployment can be solved with compromising deficit. Thus, loan can be efficient in this case.

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In the light of US current situation, lower economic output, when corona started, the economic output was relatively lower due to the pandemic effect, which shrieked the economy, by shifting AD to the left and moved current output inner as shown in PPF as shown, which caused slower inflation and higher unemployment.

That is for sure a problem, since the lower economic growth, namely recession, can cause lower standards of living due to less income. As well as inequality in distribution of income, because the lower the income, the higher proportion of income loss, so that lower income hit the most.

Accordingly, since during recession the economy cannot recover by itself, what the government did was intervention by demand side expansionary policies. First, monetary policy was implemented by reducing interest rate to stimulate economic activities, in tern investment increased, which contributed right-shift of AD as one of the components but not as efficient due to liquidity trap.In the meantime, as deficits are both inevitable and necessary in light of the current pandemic crisis, because if the situation is left unsolved, is can cause  depreciation in USD, which further adds up to higher cost of borrowing.

Therefore US government needs to continue to loan. In tern, fiscal policies are used to shift AD to the right by increasing government spending, which can presumably end up at $4.3 trillion deficit this fiscal year ending in September. But in return, it translates to 20.8% of the country’s GDP and shifted AD to the right as shown in the graph, aiming at closing the deflationary gap. Additionally, if infrastructures are built that can increase qualitative growth in the future, in tern can also shift SRAS and LRAS to the right.

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All deficits should be covered, which is usually done through government intervention.The use of the government budget to influence the economy is referred to as fiscal policy. This includes both government spending and taxation. When the government spends more on budget items like infrastructure or lowers taxes, the policy is said to be expansionary. Typically, such measures are meant to increase productivity and the economy. When government expenditure is cut or taxes are raised, the policy is contractionary. In order to combat rising inflation, contractionary policies may be implemented. In general, expansionary policy raises budget deficits, while contractionary policy lowers them.

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Within the Coronavirus many deficits have been created it is important that after the crisis it has to be ensured that debt and deficits return to more sustainable levels and this can occur with the CARES Act (Coronavirus, Aid, Relief, Economic Security) Definition of Fiscal policy = Fiscal policy refers to the use of government spending and tax policies to influence economic conditions including macroeconomic. It affects aggregate demand directly through government purchases and indirectly through changes in taxes or government transfers/spending that affects consumer spending and stimulates the AD to the desired outcome

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Erica. Fiscal deficits occur when a government spends more money than what it receives during a fiscal year. This imbalance, also known as a current account or budget deficit, is typical among today's governments all around the world. While there is a discussion regarding the long-term macroeconomic impact of fiscal deficits, there is significantly less debate concerning urgent, short-term consequences. If the deficit emerges as a result of the government's extra spending programs, such as infrastructure expenditure or business grants, the sectors that have chosen to receive the funds get a short-term boost in operations and profitability. However, in America's situation, the deficit occurs because government receipts have declined due to the epidemic, which has resulted in a drop in economic activity, therefore no such stimulus is necessary.

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However, the demand side expansionary policies practiced by the government are not always efficient and potential problems included. The government uses fiscal policy to shift the aggregate demand to the right, increasing government spending to pull the economy out of the recession created by the pandemic. It recovers the gap between potential and actual output and short-run equilibrium, the deflationary gap. But the government can face time lags such as recognition lag. The government takes time to realize that the GDP is falling or increasing too much or the government may take time to take appropriate responses.  so the government may miss the significant time for them to recover the economy. Rather than covering the deficit of $4.3 trillion, government spending increases proportionately and the budget deficit and borrowing will increase. Therefore, the demand for money, loan, and interest rates rise as banks sell bonds. As a result, it causes consumption and investment to decrease. It might even minimize the actual output of the US economy.

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Coronavirus, CARES And PPP Will Explode The Federal Deficit And Debt

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Coronavirus, CARES And PPP Will Explode The Federal Deficit And Debt

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https://www.forbes.com/sites/chuckjones/2020/04/25/the-coronavirus-will-explode-the-federal-deficit-and-debt/

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Coronavirus, CARES And PPP Will Explode The Federal Deficit And Debt

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The Federal government will spend over $2.5 trillion in just the next few months to try and offset the economic impact of the coronavirus. This spending, along with lower tax revenues, will create deficits and levels of debt that the U.S. has never experienced.