Critically assess the impact of the COVID19 Crisis (the CVC) on the Australian economy and the fiscal and monetary response to it. (i) What impact did the CVC have on the economy with reference to key...

Covid-19 Crisis (CVC) And the Australian Economy                 4
COVID-19 CRISIS (CVC) AND THE AUSTRALIAN ECONOMY
Table of Contents
The macroeconomic impact of the CVC    3
Pre-CVC economic performance    3
The great lockdown recession    4
Fig 1: World Economic Growth, annual percent change.    5
Fig 2: Projected World Economic Growth: Q1, 2019 = 100.    6
The global fiscal policy response    6
Budget deficits blew out    7
Fig. 3. Overall Fiscal Balance, percent of GDP.    8
Fig. 4. Change in Overall Fiscal Balance, percent of GDP: GFC versus CVC.    9
Fig. 5. Fiscal Measures in Response to CVC, percent of GDP: Country Groups.    9
Public debt escalated    10
Fig. 6. Change in Government Gross Debt, percent of GDP: GFC versus CVC.    11
Fig. 7. Gross Government Debt, percent of GDP.    11
How effective were fiscal policy responses?    11
Economic growth    12
References    13
The macroeconomic impact of the CVC
The most recent big bout of fiscal activism was the global reaction to the 2008–10 Global Financial Crisis (GFC) of the Australian Economy (Makin, 2019). As a result, the reaction to the pandemic encourages contrast with the earlier episode and historic Depression in Australian Economy. While the GFC and CVC are also external shocks, they have indeed been conveyed in somewhat different ways. The GFC was an external financial shock, akin to the Asian financial crisis of the late 1990s, that had an effect on economies' money and capital markets sectors through cross-border trade and financial sector linkages.
During the GFC, North Atlantic area banks, world financial markets, and oil prices all crashed, as did non-safe haven cu
ency exchange rates. The CVC, on the other hand, was an internationally sourced health disaster that forced policymakers to take appropriate preventative action, which in turn seriously curtailed economic growth and drove up unemployment (Dzorgbo, 2017). Stock markets initially responded by plummeting before partly recovering, but they have continued to gyrate based on investors' views of how long the health crisis and government controls on economic activity would last.
Pre-CVC economic performance
Prior to the pandemic, developing countries have seen considerably poorer economic growth than before the GFC (Tsvirko, 2021). Real wage growth has also been generally slow, with one primary factor being that private spending in emerging economies, which serves as a conduit for economic growth by incorporating cutting-edge technologies, has been anaemic.
Private investment has been slow worldwide since the GFC for a variety of reasons, including more stringent bank lending requirements put on businesses and heightened volatility caused by the global public debt overhang caused by excessive GFC fiscal stimulus initiatives. Prior to the pandemic, public debt was at an alarming pace in peacetime, and it continues to rise unabated globally as a result of the CVC fiscal reaction.
All the while, advanced economies, especially in Asia, contributed significantly to post-GFC global growth, accounting for up to two-thirds of global economic growth, led by populous China, India, and Indonesia. In contrast to the developing economies, emerging Asia escaped contraction during the GFC and fared well during the post-crisis global slowdown. Among the developing economies, Japan and Western Europe have seen persistently lower-than-pre-crisis economic growth. A contraction caused by the CVC was unavoidable, but a global downturn is still impossible (Petit and Teece, 2021).
The great lockdown recession
The International Monetary Fund (2020) reported that the Great Lockdown reaction to the virus resulted in a near 5% decline in global inflation, accompanied by a recovery a year later (Makin and Layton, 2021). Figure 1 shows an example of this. The IMF expected that comparable financial conditions pre-CVC will persist, including financial market valuations, despite the fact that such valuations are at odds with economic dynamics, suggesting a strong downside risk to the IMF forecasts.
As shown in Fig. 2, the IMF forecasted a V-shaped global economic rebound after just two quarters of contraction. This proposed a comparatively
ief Great Lockdown...