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The Global Economy: an Austerity Measure - Coursework Example

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Introduction An austerity measure can be defined as the official action taken by the government that aims to reduce the amount of government expenditure or the amount that is spent by the people (Jackson, 2011. p.3). The reciprocal circulation of income between the producers as well as the consumers is referred as the circular flow of income…
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The Global Economy: an Austerity Measure
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Download file to see previous pages If the value of the left hand side of the equation is negative, then it must have been financed from somewhere. The right hand side of the equation denotes the current account balance. Therefore, (S-I) + (T-G) = (X-M) + foreign savings The essay will try to evaluate the austerity measures followed by the European Union and the spending on public works of China and the control of the country over bank lending. The essay will also take into consider how successful or failure such kind of measures have been for the countries with reference to the circular flow of income. EU austerity measures The direct result of the financial crisis that was faced by the European Union was the rise in public indebtedness. The financial crisis ensued into a sovereign debt crisis in some of the countries of the European Union in 2009. The forces favoring austerity got stronger. In the middle of the year 2010, an intervention package aimed to rescue the banks as well as stabilize the financial market was introduced within the euro zone not only for countries which were suffering from the crisis but also all other countries as well. The intervention package was accompanied by imposition of the packages of austerity. The introduction of the measures of austerity reintroduces the socioeconomic regulation model at the EU level which was endorsed before the crisis emerged in the scenario. However some of the accounts were under the opinion that reversal of the measures of austerity taking the current circumstances into account will only tend to trigger the spending in public expenditure, wages as well as consumption as that would compress the level of aggregate demand through reductions in those levels of spending. The resultant will be deeper recession within the Euro zone. The rising opposition against the measures of austerity put serious doubts on the long term political sustainability. The detrimental effects of the measures in the long term cannot be overestimated even when the measures were successful. The measures of austerity would be successful in order to generate monetary policy but the social inequality will get deepen as the result of the measures. The intensity of the crisis encountered by the Euro zone will get intensified (Vural, 2011, p. 260). The government of Austria announced that the country would be able to hit the targeted three percent of GDP in the year 2011 for the deficit in the budget. The austerity plan of the country includes an anticipated income of more than 1.6 billion dollars from the increase in taxes. The remainder of the plan includes an anticipated cut in spending by 1.6 billion Euros. This type of actions will allow the new investment of 400 million Euros in the fields of research as well as education and projects of energy efficiency. The austerity measures of Bulgaria aimed at reducing the budget deficit at 2.5 percent of GDP in the year 2011 while it was aimed at 4.8 percent in 2008. By reducing the funds to almost all the ministries of the government the plan aimed to reduce the spending by about 584 million dollars in the last year. The public sector jobs would get reduced by 10 percent and the wages will be fixed for three years. The country of Denmark aimed at reducing the government spending by 4 billion dollars in the course of three years which would lower the deficit to less than three percent of ...Download file to see next pagesRead More
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