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Perspectives on Macroeconomics - Assignment Example

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The fiscal crisis in Greece is attributed to a situation of economic fiscal profligacy that is attributed to begin as early as 1980s when an upward trend in public debt began. The situation of fiscal profligacy was facilitated by the presence of deep-rooted corruption and…
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Perspectives on Macroeconomics
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"Perspectives on Macroeconomics"

Download file to see previous pages First, the Greece government is responsible for allowing a weak political system that resulted to the mismanagement of domestic economy thereby contributing to the additional government debt at an incredible rate (Georgios, 2010). Compared to other Eurozone economies, this debt rate was very high. Secondly, the financial market especially the credit rating agencies were myopic in their prediction of the US sub-prime mortgage loan crisis of 2007. Consequently, the attempts to unveil potential sovereign debt crisis led to an overreaction and the country’s large budget deficits made the economy a target. Lastly, there was a fair part of the blame on the delayed reaction of the European Central Bank by the Eurozone governments particularly Germany (Georgios, 2010).
Based on history, financial crisis tends to result to sharp downturns economically, low revenues for the government, government deficits that keep widening, high debts levels, and the pushing of government into defaults (OECD, 2013). A recession also results to high unemployment levels, falling average incomes and increased inequality. In the course of a recession, there is a fall in GDP that results to increased unemployment. Unemployment is attributed to firms going bankrupt hence most workers losing their jobs, and firms failure to hire new employees in the aim of reducing costs. In addition to not hiring new employees and reducing the number of employees, recession forces organizations to reduce costs which then translate to low wages especially the temporary workers (OECD, 2013). Reduction of costs amongst firms is also as a result of high costs of living that see most workers have their real wages cut. Fall in tax revenue is also another result of recession since firms make less profit that translates to low corporate tax; employees receive low income that result to lowered income tax; and lower expenditure result to lower VAT payments. Lower VAT payments were experienced in Greece during 2011 ...Download file to see next pagesRead More
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