The Comparative Analysis on the Impact of the Great Financial Crisis and the COVID-19 Shock in Response to Macroeconomic Policies

Abstract: The Global Financial Crisis (GFC) and the COVID-19 pandemic shock have similarities and differences. They both cause major economic downturn, affecting the normal functioning of the society. The cause and impact of them are different since the GFC is an internal shock whereas the economic downturn brought by the COVID-19 pandemic is an external shock that cannot be predicted. The corresponding expansionary fiscal and monetary policies are also slightly divergent. This research compares the economic impact of the GFC and the COVID-19 shock, specifically in China, focusing on the policy responses in different situations. Based on the analysis of the impact of the policies implemented in the GFC, the four-trillion investment proposed in 2008 was not a sustainable fiscal policy since it had made the government highly in debt. In 2020, the government also employed expansionary fiscal policies, but instead of spending on basic infrastructure, it concentrated on the advanced technology and service industry. Further, this paper suggests that the government could spend more on new investment plan like 5G technology to revive the economy during the aftermath of the pandemic.