Amongst many issues, Covid-19 brought about a reduction in consumption of a number of goods
and services (restaurants, movie theaters, airlines, tourism,…). In fact, a remarkable feature of
Covid-19 was the significant increase in personal savings in the US economy (and several other
economies around the world). The spike in the personal savings rate is dominated by the large
government transfers to households through the CARES and subsequent programs, though the
increase in savings goes beyond those transfers as can be seen in the graph labeled 1 in the attachment named graphs.
Another feature of Covid is the remarkable movement in labor force participation, as described
in the graph 2 – see attached
A final feature of Covid has been the remarkable increase in New Business Applications and
reduction in the number of bankruptcies that, typically, have led to increases in business
creation. In the past, new entrants have led to faster productivity gains. see graph 3
a) Use the consumption/savings model in the attached slide document called models to explain this consumer behavior.
Make sure to include in your comments a mention to the evolution of real disposable personal income, precautionary savings and hand-to-mouth households. You may construct graphs
b) Using the labor market models in the attached slide document called models , analyze the consequences on labor supply
and demand that might have operated during Covid and its legacy going forward. You may construct graphs
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