What is happening to the economy and how governments are fixing it

Since the last recession that started in 2008, the economy has been booming. Making money in the stock market was easy and almost everyone felt capable to do so. However, the Coronavirus outbreak has hugely affected companies, consumer spending, and overall economic expectations.

What is happening?

At the time of writing, Europe and the US are being overwhelmed with the spread of the Coronavirus. This comes with many uncertainties and a huge economic impact.

First things first

As we all know by now, the virus started in Wuhan, therefore spreading first through China. China’s industry was the first to be affected by this virus, however, also many European and US-based companies heavily rely on China, both for the assembling and the supply of vital parts of their product. This meant that even in the early stages of the Covid-19 spread, many companies were already affected.

Spread through Europe and the US

Eventually, the virus started Spreading through Europe and the US. The effects of the virus are so severe that many companies have to stop their activities, some countries are going into lockdown and only the most vital businesses remain active.

Effect on the economy

People are panicking, not only for their health and the health of their loved ones but also for their finances. The GDP (Gross Domestic Product) is expected to shrink a lot. Meanwhile, the ECB (European Central Bank) and the FED (US Federal Reserve) are pumping billions into the system to stimulate the economy.

How will the fiscal stimulus affect the economy?

Fiscal stimulus can be done in several ways. Some examples include tax-cuts, fed buying government bonds to provide money to governments, debt cancellation, or even handing out money to the people. The fiscal stimulus package is targeted to stimulate the economy. The stimulus is therefore used to stimulate incomes and output in the short run.

It’s important for this stimulus to be timed precisely, targeted right and to be temporary. If this isn’t the case, the stimulus could have some negative side effects.

The stimulus must be targeted at the right businesses or parts of society. Its intent is to stimulate the economy, thus, the money must be spent in order to stimulate the production of goods and services and, therefore, grow the GDP (Gross Domestic Product). Often, lower-income families are targeted to get the benefits of a stimulus package. The reason for this is that lower-income families usually are most affected by economic downturns. While high-income families likely will have to decrease their savings, low-income families often have to decrease their spending. If the stimulus isn’t targeted right, the money will be saved and only have an inflationary effect over time.

Another important aspect of the stimulus package is that it needs to be temporary and timed precisely. If this isn’t the case, growth, or inflationary issues could occur.

In order for an economy to work, there must be a balance between GDP and inflation. In other words, there must be a balance between the supply of goods and services, and the supply of money.

Summary

The lesson to learn is that currently both demand and production are down. This means the GDP is currently shrinking. If after this crisis we want the economy to repair itself, we need to increase the production of goods and services again. To do that, people and businesses need money. If they don’t have it, the demand for those products and services won’t increase. That’s why governments are stimulating the economy.

In other words, currently, the government is printing money and giving it away.

The governments are both fighting a Pandemic and a recession. If the monetary actions are working as planned, the economy might recover fast, however, there is also a risk of inflation and instability.

 

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*DISCLAIMER: The content on this website is made in good faith and I believe it is accurate. However, this content should be considered informational and not for making financial decisions.

How to start investing: Step by step guide

Having some cash aside is never a bad idea. It makes sure you can pay the bills and maybe cover some unexpected costs. Having a lot of cash, however, might not be such a good idea. Interest rates have become so low that they don’t cover the cost of inflation anymore.

Inflation is when you pay fifteen dollars for the ten-dollar haircut you used to get for five dollars when you had hair. ~ Sam ewing

Let’s find out why investing is the best option and how to do it.

Continue reading “How to start investing: Step by step guide”

Investing in real estate with less than $1.000

Investing in real estate can be very lucrative. It’s generally considered as a safe investment, it protects the owner against inflation, and provides an extra income stream in the form of rental money.

Usually investing in real estate demands big capital. However, there are a few ways you can invest in real estate for less than your paycheck provides.

” Buy land, they aren’t making anymore of it. “

Continue reading “Investing in real estate with less than $1.000”

5 easy ways to save more money

Many people live paycheck to paycheck. It’s estimated that more than half of Americans have less than $1000 dollars in savings. Multiple sources suggest that 20% of a monthly income should be saved.

” Save money and money will save you. “

This is how you can save money easily:

1. Track your spending

The first and obvious thing to do when looking to save money is tracking where you spend it on. Continue reading “5 easy ways to save more money”