The global pandemic was a struggle for developed and developing economies alike. Every economy was grappling with

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The global pandemic was a struggle for developed and developing economies alike. Every economy was grappling with the trade-off of saving lives or saving livelihoods. As businesses closed their doors, and consumers sheltered in their homes, the stock markets as early as February 2020, started declining in the US, UK, and developing countries. Consumer confidence measured by foot falls in shopping malls declined by30 percent, as the government instituted a lock down. In the U.S., the government tried to keep households afloat. The fresh unemployment claims rose by 20 million. The PMI (Purchasing Managers Index) declined consecutively for two quarters in the UK and U.S. Activities in the real estate sector, tourism, and travel were totally disrupted. As cases of COVID19 spiked, the return to normalcy seemed a pipe dream. Every economy saw a massive contraction in GDP for the two consecutive quarters of June and September 2020. However, China was an exception and grew in the second quarter. As early as April 2020, economists began to speculate about the shape of the recovery. In April 2020, many economists were betting that the second quarter will have a positive GDP growth for the U.S. and U.K. Gulf countries, which saw a massive drop in sales of crude oil on account of lock downs and restrictions in mobility – their economists opined that their economies would remain stagnant for many many years. Some economists from developing countries had anticipated a mixed bag, with some sectors falling, and the other sectors converting the pandemic into an opportunity and posting growth. However, the shape of the recovery was dependent on fiscal and monetary policy measures taken by governments like the U.S. and U.K., which announced fiscal packages between 10-15 percent of GDP. The interest rate in U.S. was slashed to lower the cost of borrowing. In October 2020, the U.S. economy started picking up and manufacturing activity climbed rapidly through the summer as, factories reopened. The manufacturing industry regained approximately 45 percent of springtime losses by the end of October. It was clear after this, that the U.S. economy was on the way to recovery, though not as smooth as predicted by optimistic economists in early April. It turned out more to be a choppy recovery. U.S. was out of the woods, but it was a dark Christmas for the U.K. when a new strain of the Covid 19 virus was discovered. The sceptics believed that it would take much longer for the U.K. to recover. Christmas in the U.K. leads to increase of 20 percent in consumption, and that induces new investments in the manufacturing sector by an order of 50 percent. This would not happen this year, because of the stringent steps taken by the U.K. govt to arrest the spread pandemic. This will create downtrend in investments and, in turn, lead to further contraction in GDP and output. Students may please note - the numbers reported above, in the case are fictitious and is written for academic purposes only. Any amount of googling, and internet scrolling just result in sheer waste of time. Students are supposed to answer strictly based on the fictitious case above, applying concepts taught in the class.

Answer the following questions (15 Marks):-

a) Explain with reason in what stage of the business cycle are the three countries, in the second and third quarter of 2020? For the U.S., mention the indicators of economic activity, and what category can they be classified in?

b) There are three sets of economists who have predicted the shape of the recovery, the optimistic economists, economists in gulf countries, and economists in developing countries. What are the possible shapes of recovery, each is referring to? Write two lines about each shape being referred to. What is the traditional shape of the business cycle?

c) For U.K., after December, the case mentions downtrend in investments, due to a massive drop in Christmas sales. What principle is it referring to? Briefly explain the principle.