Only a few months back, the American economy was prospering, and unemployment was low.
Then, disaster struck in the form of Covid-19. More than 3 million people have lost their jobs in the past week and the stock market is in a decline.
In response to the economic collapse, the U.S Congress recently passed a $2 trillion stimulus bill, the largest ever. Let’s look at why a stimulus is needed and what is covered.
The Need for a Stimulus
For an economy to work, there has to be supply and demand. Supply refers to the availability of goods and services for people to buy. When people desire and have the money to buy them, it is known as demand.
As an example, let's say you go on vacation and stay at a hotel. By paying for the room and the services the hotel supplies, you are helping the hotel employ workers and pay wages. These workers now have money to spend and they buy other products and services, driving demand.
During periods of growth, the economy expands, more jobs are created and there is a greater demand for goods and services. When growth slows down, the economy contracts and the reverse happens -- the demand for goods drops and jobs are lost.This is known as an economic cycle.
Sometimes, unforeseen events such as wars and natural disasters can hurt a country's economy. When this happens, the government must rescue the economy with stimuli -- loans and payments, to get people buying and selling again.
Covid-19 Impacts Economy
With the spread of Covid-19, the government has issued stay-at-home orders to slow the spread of the virus. This has affected manufacturing companies as well as service industries such as travel, restaurants, and entertainment.
From our earlier example, because people are no longer traveling, hotels are unable to pay wages to their workers, many of whom lose their jobs and don't have money to spend. In addition, nearly one-third of Americans participate in the Gig economy -- these people work as freelancers, Uber drivers or rent their homes on AirBnB, and are unable to earn income.
The economy must once again be rescued by the government which is stepping in to help families and businesses. The $2 trillion stimulus package will be used to
- Provide all individual Americans who qualify a direct payment of $1200 each and $500 for each child under 17.
- Provide unemployed workers, including Gig workers, an extra $600 each week for four months besides unemployment benefits.
- Help struggling businesses with a $500 billion loan. There will be a committee that would supervise the distribution and use of funds. Airlines, healthcare providers, farmers, educators, state and local governments, and a few other industries will divide up the remaining amount.
Though legislators hope this bill will suffice, more acts will probably be required to stabilize the economy, especially since there is no end in sight for the pandemic.
Sources: NYTimes, Washington Post, NPR, uga.edu, thebalance.com, bea.gov