We are faced with a negative demand shock

*During the oil shocks in the second half of the 1970s, governments believedthat the solution was to boost demand, whereas the problem was negative-supply shocks. So the expansionary (monetary and fiscal) policies implemented at the time simply led to an upsurge in inflation. We are currently faced with a negative demand shock, due to the halt inindebtedness and the decline in global trade.It must therefore be dealt with as a demand shock and not as a supply shock
*counter-cyclical monetary and fiscal policies are justified up to thepoint where perverse demand-dampening effects appear;
*• *cutting wages is counterproductive, except if it can boost employmentmore than proportionally; governments should therefore as far as possiblecurb companies’ attempts to renegotiate wages downwards;
*• *having low inflation is favourable whether this is thanks to commodityprices or increased competition, as it stimulates real incomes; likewise,the fact that employment only partially adjusts to the drop in activity isstabilising, even though it entails a fall in profitability.*