Determine alternative actions that could have been used by the federal government or the central bank to alleviate or divert the economic crisis that prompted the CARES Act of 2020. Explain in six sentences if your alternative action is better for the overall health of the economy or not.

Answer 1

One alternative action the federal government could have pursued is implementing direct cash transfers to citizens earlier in the crisis, rather than waiting for the formulation of the CARES Act. This approach could have included regular, unconditional payments to individuals, which would have directly increased consumer spending and provided immediate relief to households. Additionally, the central bank could have engaged in more aggressive monetary easing, such as lowering interest rates even further and committing to a bond-buying program aimed directly at local governments and small businesses. This would potentially enhance liquidity and financing options, preventing layoffs and business closures at a larger scale.

While the CARES Act included significant support, earlier direct payments, combined with targeted monetary policy adjustments, might have prevented deeper economic contractions and reduced anxiety among consumers and business owners. This alternative action would likely have been better for the overall health of the economy in the short term by sustaining demand and preventing a surge in unemployment, thus fostering a quicker recovery trajectory.