The economies of the world have plunged in the wake of the coronavirus pandemic, and unemployment has skyrocketed, largely because of the policies designed to slow the spread of the virus. The question is, will the economy quickly recover once the pandemic has passed; and when will that be?
Many are wondering how to do an economy restarts after a major economic downturn. But we have to remember that an economy will only be resuscitated when groups of people, vital services and companies leverage their unique skills, interests, and desires to trade with each other freely for goods and services. The total sum of these productive efforts is crucial to any economic recovery.
Why do we need to restart the economy?
We need to restart the economy because it is a vehicle for the creation of wealth. Societies use limited resources to produce valuable commodities and distribute them among different people for a medium of exchange. The major forces that drive the economy are supply and demand which includes labor represented by employment, and natural resources. It is important because of demand and supply, scarcity, and the desire for efficiency.
The law of demand and supply sets prices and distributes goods and services. The United States as the world’s leading free market economy depends on capitalism to thrive. Its economic output is greater than any other country that has a free market. A market economy has many advantages; competition leads to efficiency, because businesses that have fewer costs are more aggressive and make more money. Innovation is encouraged because it provides a competitive edge and increases the possibility for wealth.
However, the difficulty is deciding the ideal production ratio between the two. Resources are limited and it is important to use them as efficiently as possible. Thus, it is essential to know if the production and distribution of domestic product made by an economy is maximally efficient. The longer the economy stays shut down, Education, private capital investments, and economic prospect are all likely to suffer long-term damage from the downturn. Economic damage will result in higher unemployment, lower wages and incomes, and lost opportunities.
Types of Economic System
An economy is a system of producing and trading items of value. It comprises all activity related to production, consumption, and trade of goods and services in an economic zone to everyone from individuals to entities such as corporations and governments. Governments play a major role in directing its ideological policies guiding its decisions for economic growth and wealth creation. An economic ideology can be seen as a country’s principled positions on how its economy should be regulated.
The way scarce resources get distributed within an economy determines the type of economic system. There are largely three major economic systems in the world: Capitalism, Socialism, and Communism, but most countries use a combination known as a mixed economy. However, in pure or laissez-faire capitalism, there is private ownership, and markets and prices coordinate and direct economic activity.
Though each type of economy has its own strengths and weaknesses, its sub-economies, and inclinations, and, of course, a troubled history; Capitalism is the world’s greatest economic success story. It is the most effective way to provide for the needs of people and promote the democratic and moral values of a free society.
Economic Challenges
So, what are the economic challenges a society faces? The four basic challenges of an economy, which arise from the central dilemma of scarcity of resources are:
- What to produce?
- How to produce?
- For whom to produce?
- What is necessary for economic growth?
Economic Growth is important; it is the means by which we can improve the quality of our standard of living. It also enables us to cater for any increases in our population without having to lower our standard of living.
What is the biggest challenge in economics? The Basic challenge is Scarcity. Scarcity, or limited resources, is one of the most basic economic difficulties we face. We run into scarcity because while resources are limited, we are a society with unlimited wants. The basic economic challenges of the world are:
- Monopoly
- Micro economic dilemmas
- Environmental issues
- Volatile prices
- Recession
- Inflation.
- Inequality
- Poverty.
Economists believe that economic growth benefits nearly all citizens of a country and therefore reduces poverty. Though poverty, a socio-economic issue, have adverse influence on an individuals’ economic activity including lack of education, cultural and religious discrimination, overpopulation, joblessness, and corruption.
As the population ages and more people receive Social Security, the economy needs to grow so their benefits can be paid for. Growth gives the government the funding to pay for Social Security and Medicare, which are funded through the collection of taxes.
Government’s Roll
The government’s aim, therefore, is to create the climate to support a successful economy. The successful economy is tied to factors which influence the world on a global basis, affecting virtually every society in that global community. Energy, climate change, resource scarcity, demographics, economic rebalancing. A good business needs a good economy, which in turn needs a good society.
So, what distinguishes a good economy? A good economy is distinguished by its Gross Domestic Product (GDP). The GDP is the rate which shows how much more the economy produced than in the previous quarter. Many economists place the ideal GDP growth rate at between 2%-3%. In a healthy economy, unemployment and inflation are in balance. According to the Federal Reserve, the lowest level of unemployment that the economy can sustain is between 3.5% and 4.5%.
Therefore, when prices rise for energy, food, commodities, and other goods and services, the whole economy is affected. If inflation becomes too high the economy may start contracting; conversely, if inflation is controlled at reasonable levels, the economy may prosper.
Lessons Learnt
If there is anything COVID-19 taught us, is that, we should diversify our portfolio; we should have multiple streams of income, we should have savings to bridge us over tough time, because we do not know when the next emergency will be. But if there was a lesson to learn, its this, we must be prepared. We can start today by investing in our future. Learn a new skill and put it to work for us as a freelancer. Learn more…
Let freelancing be your path to financial freedom. The food banks may not be sufficient to meet your family’s need, but at least you will have some money to tie you over until you can get back on your feet.