Introduction
The COVID-19 pandemic was one of the most devastating public health crises to affect the economies of the U.S. and Australia. The pandemic was associated with adverse effects on the employment rate, consumer price index (CPI), and fiscal and monetary policies. Data from the U.S. and Australian statistics agencies indicate varying effects of COVID-19 on key macroeconomic activities. This paper examines the primary impacts of COVID-19 on various macroeconomic factors in the U.S. and Australia.
Aggregate Economic Activity
Aggregate economic activity involves the measurement of all factors that describe the economic conditions of a given country. Gross Domestic Product (GDP) is a key measure of aggregate economic activity. While nominal GDP does not involve inflation, real GDP is inflation-adjusted (Lauer et al., 2023). Figures 1.0 and 2.0 below show the nominal and real GDPs of Australia and the U.S. between 2011 and 2023.
Data from Figures 1.0 and 2.0 above indicate that COVID-19 hurt both real and nominal GDPs during the first quarter of 2020. Although the change in nominal GDP was almost equal in both countries, the U.S. experienced a greater change in its real GDP than Australia. However, both countries registered steady growth in GDP from the first quarter of 2021 to the first quarter of 2023.
Short Run Fluctuations
COVID-19 was associated with short-run fluctuations, which involved significant changes in economic activities. The rates of employment and unemployment during the pandemic can help in understanding the short-run fluctuations caused by the pandemic (Nia et al., 2022). Changes in business activities due to the disrupted supply chain and other effects led to decreased profitability. Figures 3.0 and 4.0 show the employment and unemployment rates in the U.S. and Australia during the pandemic.
Figures 3.0 and 4.0 show that COVID-19 hurt employment rates in both the U.S. and Australia. The employment-to-population ratio in the U.S. decreased significantly compared to Australia, as shown in Figure 3.0. Meanwhile, the unemployment rate in the U.S. was higher than in Australia. Although the two countries exhibited differences in unemployment rates and employment-to-population ratios, these disparities were significantly mitigated following the pandemic.
Keynesian Model of Economy, Fiscal, and Monetary Policies
Government interventions are crucial in stabilizing economies during natural pandemics, such as COVID-19. The Keynesian model of the economy is employed to assess the impact of government interventions on various economic indicators (Abbass et al., 2022). Fiscal and monetary policies are primary tools of Keynesian economics. While fiscal policies involve government spending, monetary policies involve changes in interest rates and the management of the country’s money supply. Figure 5.0 below shows the CPI inflation rates in the U.S. and Australia.
According to Figure 5.0 above, the inflation rate in the U.S. is higher than that in Australia. The rates increased significantly during and after the COVID-19 pandemic, as well as following subsequent government interventions. The fiscal and monetary policies adopted in both countries helped in countering the effects of increased inflation. In the U.S., the Federal Fund rate was cut by 1.5% as a monetary policy response to COVID-19 (Milstein & Wessel, 2021). Meanwhile, the fiscal policies adopted included the enactment of relief bills that provided about $3.3 trillion to the American Rescue Plan in 2021 (Haskins & Brachman, 2023).
In Australia, the cash rate target was lowered to 0.1% as a monetary policy measure (Lim et al., 2021). The adoption of the JobKeeper Payment Program was one of the fiscal policies implemented by the Australian government (Lim et al., 2021). Government intervention is crucial in mitigating the effects of inflation during economic downturns.
Conclusion
COVID-19 had a profoundly detrimental impact on the U.S. and Australian economies, resulting in increased CPI inflation and higher unemployment rates. While the pandemic had more negative effects on the U.S. economy than on the Australian economy, government interventions were crucial in both countries. Following the Keynesian economic model, fiscal and monetary policies were used to counter the effects of the pandemic. Therefore, both countries’ economies exhibited significant positive changes after the COVID-19 pandemic.
References
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