Deck 12: International Economic Perspectives

Question 1

How does a pandemic impact the global economy? In your answer, be specific with respect to pathways.

Answer 1

A pandemic causes governments around the world to reduce the spread of disease. Some of these government responses include lockdown measurements, shutting down businesses, and overall reducing economic activity. Reducing economic activity causes higher levels of unemployment nationally. In respect to the global economy, countries respond to the pandemic by closing borders, shutting down workplaces, and limiting distribution among supply chains. All of these responses slow down the global economy.

Question 2

With a pandemic, how does the nature of the shock and its amplification channel signal its severity?

Answer 2

On a global scale, a pandemic creates public health and economic costs. The crisis in public health requires a reduction in global economic activity. Several factors signal the severity of a global shock, including the nature of the shock and amplification channels. The nature of the shock determines the length and severity of the global economic downturn. When global shocks occur, such as pandemics, the economic outcomes take years to unfold, often spiraling in unpredictable directions. Amplification channels determine the shock associated with a global pandemic amplifies through familiar channels such as financial markets. The initial adverse economic impact has been amplified by impaired credit intermediation as a result of a global liquidity crunch, strains in corporate and household cash flows and balance sheets, and financial institutions' weakening solvency and funding positions.

Question 3

With respect to a pandemic, how do early indicators and changes in commodity prices signal its severity?

Answer 3

Early indicators warn of future economic disruptions. Investments in both assets and industrial production decline. The closing of non-essential businesses and the implementation of intervention policies decrease retail sales. Measured on a quarterly basis, economic contraction occurs. Behavioral changes among households lead to a reduction in travel. A decrease in consumer confidence multiplies the initial decline in economic activity. The public health sector reaches capacity, straining the ability to treat those who are sick. Taken together, early indicators warn of upcoming crises and signal to public sectors to mobilize resources.
The deterioration of economic conditions leads to a decline in commodity prices. With a global economic contraction, the prices of commodities such as oil are likely to fall. With this example, two types of markets exist. In the spot market, barrels of oil are bought and sold for immediate delivery at a specific location at current market prices. In the futures market, contracts that promise a set price for the future delivery of oil are bought and sold. The futures market signals how long the market may experience a relatively lower price. In the oil supply chain, refiners normally purchase oil with futures contracts, either from an exchange or privately negotiated. With this practice, futures markets exist at the center of the oil-pricing system. To establish their positions, speculators use the futures market because it is highly liquid and less vulnerable to distortions. The availability of futures prices enhances the transparency of the market and signals how long commodity prices are expected to remain low.

Question 4

A pandemic economy tracker includes data for the indicators that reveal changes in the global economy. What indicators best describe changes in the global economy? Why?

Question 5

With a pandemic recession, explain what the following indicators reveal: mobility, speed of intervention, size of the economy, capital markets, and developing country status.

Question 6

In the model of a trading economy, what is the impact of a pandemic on a country's production possibilities? How do relative prices and the terms of trade impact the result?

Question 7

What are the characteristics of developing economies? What unique challenges does a pandemic present?

Question 8

How did the coronavirus pandemic impact the achievement of the sustainable development goals of the United Nations?

Question 9

In developing countries, how did the coronavirus pandemic impact food insecurity, poverty, and the potential for conflict?

Question 10

Does a pandemic lead to lasting effects with respect to the process of globalization and global networks? To answer this question, analyze data on international trade, foreign direct investment, airline travel, and other global indicators.