COVID Economics #3: Unemployment

Today, we’re going to take a look at unemployment. More than 16 million unemployment claims have been filed in the last 3 weeks, and the number of unemployed people is most likely much higher. Here is a graphic to give you a sense of scale:

Unemployment Graph

Many economists believe that by the end of this month, the unemployment rate could be 15%, compared to 3.5% in February. Right now, countries accounting for over 50% of the world’s GDP are in lockdown, so the economic slowdown is reaching unprecedented rates. Even with CARES (government stimulus package), many households are finding it difficult to pay their bills and rent, creating a snowball effect (as many landlords depend heavily on rent for income). Receiving the $1.2k checks has also been difficult, as demand is so high that the system is backed up. Consider donating to/supporting local small businesses. 54% are out of business already, with that number expected to increase in the following weeks as more states lockdown. Now onto the weekly challenges.

Last Week’s Answers:

  1. G goes up, Aggregate demand up, Output up, demand for loanable funds up, real interest rate up, private investment down, capital stock down, long run growth down (crowding out effect!)
  2. We had a variety of different opinions, some expecting a speedy recovery when spending skyrockets after this is over, and some thinking this could lead to a slump 5+ years long. Check out this article for a more detailed analysis:

Weekly Challenges:

  1. Everyone’s microeconomics is probably a little rusty. No better time than now to get back into it! Assume that a perfectly competitive profit-maximizing firm is at long-run equilibrium. At an output of 100 units, its total revenue is $600 and the total fixed cost of production is $50. What is its marginal cost and its average variable cost?
  2. Open-ended: What does this pandemic mean for inequality? Of course, low-income Americans are being hit much harder than large corporate companies, but think about the opportunities big companies now have in the market. Some might begin purchasing smaller companies or even rival companies that are in need of cash, increasing market power and potentially creating more oligopolies and hurting consumers. Or will the pandemic spur a period of increased social welfare programs that will continue into the future?

As always, you can answer one or both questions. Stay safe, and stay home!

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