Economics

Response 1
The business cycle represents changes in an economy due to economic variables such as
production levels, employment, and income levels. The business cycle phases are expansion,
peak, contraction, and trough. The expansion phase is characterized by an economy that grows
rapidly. A conducive environment increases production and employment, and wages increase
and drive-up demand for goods and services. Debtors meet their obligations on time, and
therefore, interest rates are low.
The changes in the expansion phase drive the economy to a peak which is the maximum point of
growth in the cycle. The economic variables do not grow after the peak stage. At this stage,
economic imbalances create a need for restructuring, which leads to the third phase of recession.
During a recession, demand for goods and services drops, and there is an oversupply of goods
and services in the market. The excess supply causes production to decline. Consequently,
employment rates fall, and so does income.
The last stage is the trough. At this stage, all indicators point to negative growth. Production,
employment, income, supply, and demand levels are at their least.
In late 2019 and early 2020, the global economy experienced an economic recession due to the
COVID-19 pandemic (Bagchi et al., 2020). Governments imposed restriction and non-movement
measures, which halted production and value-creating activities. Production declined,
employment rates reduced drastically, and demand for goods and services. In the tourism sector,
hotels and restaurants were worst affected and closed down.
The corrective measures would be to vaccinate as many people as possible and invest in the
health sector to prepare it for the surges in infection. This solution reduces the probability of

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imposition of further lockdowns and ensures that core economic activities continue without
interruptions.
Response 2
Aggregate demand is the total demand for finished goods and services in an economy at a given
time. Aggregate demand is expressed as the sum of:
 Consumer expenditure,
 Investment expenditure,
 Government expenditure,
 The difference between exports and imports.
Investment expenditure has caused the most significant effect on demand for lettable space.
Corporates and individuals have been investing in real estate to earn returns in rental income and
other forms of returns on investment and its reduced risks. Increased investment over time has
created an increased supply of lettable space in residential and commercial markets. While there
has been a stable increase in the demand for lettable space leading up to 2020, the COVID-19
pandemic has caused many businesses to rethink their expansion activities (Allan et al., 2021).
Individuals have also reconsidered their mortgaging actions due to income uncertainties and
stringent conditions of lenders. As such, the aggregate demand for lettable space has reduced. I
disclosed my intention to move to a cheaper apartment to my landlord, which he responded with
a 10% rent reduction. If he had responded negatively, I knew I had options due to excess supply
of residential space and reduced aggregate demand.

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Response 3
Transaction demand for money is the demand that arises due to daily transactions for necessary
goods and services such as buying food items, medical purposes, fuel, and gas. Asset demand for
money exists when individuals hold money to purchase financial assets such as shares, bonds,
valuables such as gold, and other financial assets.
Interest rates, aggregate income, and price levels are all affected by government actions in fiscal
policy. The government’s fiscal policy measures affect aggregate demand. For example, when
the government reduces taxes, aggregate demand increases. An increase in aggregate demand
leads to a rise in output and a subsequent increase in transaction and asset demand for money. As
the demand for money increases, interest rates increase. Subsequently, consumers reduce their
spending activities, aggregate income declines, and price levels rise.
Most employed persons hold money to meet transactions as they fall due. When a paycheck is
received, people hold money to pay bills and subscriptions when they fall due such as rent,
internet, telephone bills, food, and miscellaneous expenses, which arise from time to time. When
more people hold more money for transaction purposes, there will be a higher demand for
money. Employed persons also hold money for the purchase of assets. For example, when one is
paid, and the government announces that a new bond will be available for subscription in a week,
interested persons can hold their money. At the same time, they wait for the subscription period.
Response 4
Governments use recessionary fiscal policy to stimulate the economy and improve economic
conditions. Limitations in such policies may occur due to lags in implementation, lack of
efficient redistribution of income, and accurate forecasting. The United States government

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enacted fiscal policy measures in monetary policy, interest rates, and special programs. For
example, the federal government revised the interest rates in 2020 by 1%. In another example,
the Coronavirus Aid, Relief, and Economic Security (CARES) Act was enacted to protect
businesses, industries, at-risk families, private contractors, and health sectors.
Fiscal policy during COVID-19 was different from other recessionary policies because it was
specific, and the government was targeting the most at-risk businesses, families, and individuals
(Carroll et al. 2020). Other recessionary fiscal policy measures are general, focusing on the
whole economy and all individuals. For example, the CARES act had a pandemic emergency
unemployment compensation (PEUC) which benefitted workers who had depleted their
employment income, and pandemic unemployment assistance (PUA), which affected self-
employed individuals.
The COVID-19 recessionary policies were timed. The guidelines were enacted to run for a
particular specific time. For example, some provisions of the CARES act were enacted to run
until 31 st December 2020. Other recessionary policies run until the desired level of economic
recovery is achieved.

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References

Allan, R., Liusman, E., Lu, T., & Tsang, D. (2021). The COVID-19 Pandemic and Commercial
Property Rent Dynamics. Journal of Risk and Financial Management, 14(8), 360.
https://doi.org/10.3390/jrfm14080360
Bagchi, B., Chatterjee, S., Ghosh, R., & Dandapat, D. (2020). Impact of COVID-19 on Global
Economy. SpringerBriefs in Economics, 15–26. https://doi.org/10.1007/978-981-15-
7782-6_3
Carroll, C., Crawley, E., Slacalek, J., & White, M. (2020). Modeling the Consumption Response
to the CARES Act. National Bureau of Economic Research.
https://doi.org/10.3386/w27876