The Next Macroeconomic Cycle and Its Risks

Topic: Economics
Words: 2032 Pages: 7


COVID-19 has had an immense negative impact on the global economy since its wake in 2019. The disease left many people unemployed following the governments’ directives to prevent people from accessing densely populated areas to avoid further spreading the virus. The pandemic led to the rise in the inflation rates of essential commodities provided in the market due to the high demand for household commodities in the entire quarantine period. Globally, the pandemic has seen economies shrink due to reduced production activities and the closure of businesses to pave the way for the containment of the virus (Carlsson-Szlezak et al., 2021). Many people worked hard to support the government’s bid to revive the employment industries within the country and have seen the now progressive recovery from the impacts of the spread of the pandemic. Since the discovery of vaccines against the virus in early 2021, governments have worked hard to revive the previously failing economies through fiscal and monetary policies.

Effects of COVID-19 on the Global Economy and Employment Levels

The pandemic led to an increase in unemployment rates through the campaigns such as stay-at-home in order to stop the spreading of the disease. The virus spread negatively impacted transport industries, leisure, and hospitality businesses (Martin et al., 2020). Governments banned travel from one region to another to avert the further spread of the virus. In 2020, the number of unemployed people increased, leading to a lower flow of income. The number of poor people projected was 14.3 million people, most from middle-class families who depend on imported foodstuff. Due to the directives, many people lost jobs because people were not migrating. Air travels from one country to another were affected, and not many would travel for business trips. The governments directed people from all over the world to stay at home in the wake of the virus. Leisure joints were closed down to prevent people from meeting together. The pandemic has led to the deaths of many employees in various sectors, reducing the number of labor providers in the market. Most of the outlets also shut down, sending many employees home. In turn, the unemployment rates surpassed those of the previous years greatly.

The COVID-19 pandemic resulted in an upsurge in the inflation rate within the period. Since there was less money supply due to the increased unemployment rate, the prices of commodities in the market accelerated (Martin et al., 2020). People demanded basic needs at high volumes leading to shortages of stocks on the supermarket shelves. Items such as tissue papers were in low supply, considering the increased demand. The suppliers raised the prices to return the demand and supply at equilibrium. Other sectors, like the travel industries, hiked their prices because the movement to various parts of the nation was prohibited, making it risky. The COVID-19 season saw a decrease in migrators, thus convincing transporters to raise the transport fees to pay their expenses from the few migrators. Services providers increased the cost of their services, especially those that involved coming in contact with their customers. The majority of the stalls were closed down, leading to an increase in price by the remaining few.

The spread of the virus, construction, transport, and manufacturing industries were also affected by the virus. Construction industry members experienced a wide range of challenges during the season. Delays of construction materials were one of the challenges faced at the hike of the virus. Prevention of movement in and out of sensitive regions led to a standstill, reducing the progress of the activities. The industry also faced financial challenges since most investors redirected their planned investment towards providing health amenities to their staff. For instance, the construction industry members spent their funds on the containment activities such as sanitization of the premises and tools used in storage and development, respectively. The governments postponed significant infrastructural development projects to erode the virus ultimately. Among the few projects that benefited during the period were manufacturers of masks and detergents to wash surfaces to clear off the virus. COVID-19 led to inequality between different economic classes since many middle-class families became poor. Money was distributed more to the rich, who ran large, persistent businesses throughout the period. Economic growth shrunk during the season, seeing many projects reduced to household affairs.

Monetary and Fiscal Policies Used to Deal with the Pandemic

Monetary Policies

In reaction to the emergence of the pandemic and its negative impacts of unemployment, inflation, and controlled economic growth, the government has used expansionary monetary policy to help the citizens persist through the pandemic. Due to the pandemic, lower bank rates have helped facilitate a good recovery from the recession (Sahu, 2021). Money available for loans by financial has increased in the market, allowing small and medium-scale businesses to borrow and reinstate their operations. Lowering the interest rates encourages borrowing by firms since the interest rates are low. After borrowing, the money is invested in the enterprises, creating employment and income generation opportunities. Families sustain themselves, and the inflation rate lowers since the amount available for spending is high. The government’s action to reduce the interest rates is one of the expansionary money policies that can control the economy and encourage quick recovery from the recession.

Additionally, the government can boost economic recovery by increasing bank reserves. Bank reserves are the amount of money deposited that the banks can hold from their customers. The bank reserves are held by financial institutions and circulated back to the community (Sahu, 2021). Enlargement of the bank reserves gives the banks a large amount of money that encourages them to lend out to the population to profit from their interests. The process requires government intervention whenever a response to the money supply is needed. The federal government encouraged banks and other financial institutions to lend out more money to borrowers by increasing bank reserves. Bank reserves are essential for controlling the amount of money in supply in an economy. Another expansionary monetary policy that the government used is open market operations. The government bought back its financial securities in the form of bonds. The government sells the bonds at a higher interest to encourage investors to sell the bonds back. When investors repurchase the bonds, the government increases the money supply, helping society afford the rising commodity prices.

Fiscal Policies

Besides increasing the money supply in the economy, the government can use fiscal policy. Fiscal policies are the forms of government spending that increase the money supply in the economy. The government increased its investments in the construction industries to create hospitals to cater to the health of the citizens (Sahu, 2021). Aggressive government spending on the construction industry provided money for people laid down by other constructors in the wake of the pandemic. The government also increased its spending on detergents and mask industries. Detergents and masks manufactured were given to the general public to protect them from catching the virus. Improving the manufacturing industry created employment for society and encouraged these products to control the spread of the virus. It influenced the quality of detergents and masks and maintained the pricing because other manufacturers went by the government’s prices. Therefore, the government-controlled the inflation rates in the prices of essential commodities. Moreover, the government engaged in spending on the manufacture of the vaccine against the pandemic. The invention of the vaccine has aided in the economic recovery from the recession faced.

The government also offered unstable families essential commodities and services. For instance, the government provided healthcare facilities for those who could not afford them. The leadership also gave foodstuffs to the needy communities and gave shelter to street families to control the spread of the virus (Sahu, 2021). People also received financial support through unemployment benefits from the government. The unemployment benefits helped sustain the economy by reducing inflation rates and reducing the impact of unemployment. The boost maintained the state of many families and encouraged them to work harder after the reopening of the economies. Employees called off from the travel, hospitality, and leisure industries received financial support in grants from the government. Monetary donations increase the money available for spending and the investment capital base. The contributions rejuvenated many businesses after the reopening of the various economies in the world. In turn, the government maintained the Gross Domestic Product from the support they gave the needy to start their new businesses.

The government has also cushioned the household’s income by reducing the taxation for small and medium-sized enterprises. Through the process, the governments have left quite a good amount of money for consumption by the households making life easier. The governments gave tax holidays to such enterprises leading to the redirection of the funds to other profiting activities (Sahu, 2021). The tax holidays gave the firms a total profit, caring for their employees instead of laying them off entirely. People enjoyed this because they met their families’ needs without altogether losing jobs. Such ideas promoted an easy transition of businesses throughout the period and emerged without suffering many economic tragedies. The financial stability of both companies and employees strengthened under the prevailing circumstances. As a result of the reduction in taxes owed to the government by individuals and corporates, the businesses recovered from the pandemic efficiently, recording the fastest recovery from a recession in history.

Further Strategies to Control the Impact and Improve the UAE GDP

However, despite the many methods applied by the government to promote economic recovery from the recession due to the pandemic, it should use other strategies to promote economic recovery and reduce the effect of the COVID-19 epidemic. Among different approaches that the government can use is promoting private sectors through lowering the loan interest rates, taxation, and offering wages and salaries subsidies that will facilitate the maintenance of most of the employees in these sectors (The United Nations, 2020). By providing these services to the private sector, the government gains high revenue from the taxation of employees’ incomes. The government prevents the increase of unemployment and helps reduce fallouts in families by boosting the amount available for spending for these families. After controlling the unemployment rates through the maintenance of employees, the government holds the inflation rate through the sustainability of the demand and supply equilibrium. The promotion of private sectors helps accommodate many people who cannot get employed in the public sectors to avoid overflowing. It also reduces the government’s spending on non-profiting ideas that lead to low economic growth, such as unemployment benefits.

The government should also aim at installing permanent solutions to adversities such as food supply insufficiencies. It should ensure the reinforcement of the green economy agenda and the innovative economy. The leadership must direct funds to major economic models that assure permanent decent jobs for the growing populations (The United Nations, 2020). Since doctors and scientists have discovered the vaccines for COVID-19 and used them in the past several months, the government should create industries that guarantee accurate solutions to future economic recessions. A permanent supply of employment opportunities encourages people to seek refuge in employment and reduces their reliance on the unemployment stimulus. The government should also revoke unemployment benefits to push people to seek work where possible. In effect, the number of unemployed people will reduce in society, creating a higher GDP output. People will be discouraged from depending on hand-outs and putting more effort into sustainable income. The government must continue with the food security program to eliminate hunger due to the lack of income to spend on meals. It must protect its soviets from hunger strikes and have genuine, long-lasting methods to eradicate the fear of hunger.

Though the COVID-19 pandemic has pushed society to the verge of economic failure, it is eminent that the United Arabs Emirates and the governments have played a critical role in the businesses’ and households’ economic recovery. The governments have protected small and medium-sized enterprises from failing through monetary and fiscal policies. The governments have controlled the money supply for the households by ensuring a consistent flow of funds through fiscal and monetary policies. The government should continue to find sustainable prevention of unemployment, inflation, and deterioration of economic growth through modern methods.


Carlsson-Szlezak, P., Swartz, P., & Reeves, M. (2021). Preparing for the next macroeconomic cycle and its risks. Economics & Society, 2-8.

Martin, A., Markhvida, M., Hallegatte, S., & Walsh, B. (2020). Socio-economic impacts of COVID-19 on household consumption and poverty. Economics of Disasters and Climate Change, 4(3), 453-479. Web.

Sahu, M. (2021). Public policy measures for COVID-19 crisis management: Lessons from the UAE. Fulbright Review of Economics and Policy. Web.

The United Nations (2020). The impact of COVID-19 on the Arab region an opportunity to build back better. Web.

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