Answer to Question #251946 in Macroeconomics for Chusta

Question

COVID-19 adversely affected both our health and economic prospects, which in turn affected the behavior of economic agents—firms and households. Therefore, agents resorted to the ‘wait and see’ approach, which means postponing consumption and investment due to increased uncertainty. a) what impact this change in behavior had on employment and output? b) what effect did it have on the aggregate demand? [Use diagrams to illustrate your responses]. [10 marks

Answer 1

The wait-and-see approach to employment can be beneficial in some situations. It provides employees with more opportunities to learn the skills that are required for their future careers. However, this approach also has drawbacks, which is why employers need to strike a balance between the two.

The wait-and-see approach to employment is most common among college graduates who are uncertain about what they want to do with the rest of their lives. Employers often find it difficult to find these graduates because they are unsure about what they will be doing in the future.

The wait-and-see approach can be beneficial for many reasons, though. For example, by waiting on decisions like whether or not you want to start your career as an environmental scientist or pursue a writing career, you gain time for yourself to learn more.

The wait-and-see approach allows for a more flexible and opportunistic style of decision-making. It leads to a better understanding of the market and enables people to take calculated risks.

However, it does carry with it some large risks, such as missing out on great opportunities that could occur during this time.

The wait-and-see approach has impacted productivity in the workforce in a variety of ways.

1. It is changing how people work with the current technology available to them, which leads to job dissatisfaction

2. It is changing what people's demands for work are- they are asking for more flexible hours/work from home opportunities

3. It is encouraging innovation and risk-taking, which leads to increased productivity.

This question has a complicated answer. The wait-and-see approach can have both positive and negative effects on aggregate demand. As a result, many analysts have been cautious about providing definite answers to this question.

Some say that the waiting and seeing approach will have a positive impact on aggregate demand because people will have more time to save up for purchases.

If consumers are waiting to buy luxury goods, the demand for these resources may be reduced during the period when economic improvements are not taking place. This effect causes an increase in the price of these resources.

However, other analysts argue that the waiting and seeing approach will decrease aggregate demand as people don't want to invest their money for something they might not need later.

On the other hand, if consumers decide that it’s too expensive to wait and decide not to buy any luxury goods during that period, then this may reduce aggregate demand for these products during that period as well.

The wait-and-see approach has been the dominant economic strategy for the last few years, but it is causing painful consequences.

The demand for investment goods has slowed down, but this impact has not been felt in aggregate demand.