Macro economics assignment Essay Example | Topics and Well Written Essays - 1500 words

Macro economics assignment - Essay Example Austerity is cutting back on spending particularly on amount of public services and benefits. Austerity policy is usually used by governments to reducing defecate spending. Major characteristic of austerity is increase in taxing. Stimulus is where monetary policies are used to positively stimulate the economy. This is normally done by quantitative easing and the lowering of lending rates. Austerity is putting many countries especially those in Europe in a deeper mess. This is because it is causing a lot of difficulty than solution. So I believe it is not the best way to deal with the aftermath of the financial 2007-2008 financial crash. This is because the high tax rates are resulting in very minimal tax revenue. It is also getting harder and harder in making cuts on spending. According to Woods (2013), austerity has completely failed in countries like Greece to appoint where its output is declining. In other countries like the United Kingdom, government leaders have admitted that th ey were unable to reach their targets in 2010 even after slashing back on budgets and government spending (Davidson, 2013). The Exchequer chancellor George Osborne when giving his report to the House of Commons he stated that they had minimized government spending by up to 30 percent by the year 2010 hopping that they would reduce the nations deficit of the budget to zero percent in a period of four years and at the same time they also forecast that the country would have cleared all its public debt (Davidson 2013). However, their expectations were not met. Up to today none of the government forecasts on the outcome of their austerity measures has happened. Britain is still running on a budget that has a high deficit, and it has entered an even worse situation before the austerity measures (Davidson 2013). This clearly shows that austerity is not the way to go about the after math of the financial crash. Having seen that austerity policies are not working in many countries, then I p ropose stimulus to be the best option to deal wit the after math of the 2007- 2008 financial crisis aftermath. This can be proved by using the United States of America as an example. The United States of America implemented both austerity and stimulus policies to deal with the after math of the financial crash. In 2008 the United States of America Congress adopted a $158 billion tax cut package and in 2009 $787 billion unemployment fund (The New York Times, 2013). Te previous tax plan did not take a major effect in minimizing the United States’ deficit. However economists argue that the stimulus plan helped the United States of America’s economy to recover and even minimized job losses greatly. The dispute on measures to cope with the financial crash after math is mainly between the Keynes stimulus and the orthodox economics. As the theory of Keynes suggests, that in the short run, aggregate demand greatly influences product activity. Being so in stimulus amount of mon ey to be put in the economy is greatly influenced by the demand aggregate demand for the boost. This means that the amount of money to be boosted in economies as a result of the Financial crash largely depends on the level the economy has fallen. The orthodox economics insist that economic decisions are influenced by availability of finances and other market powers. The dispute between Keynesian and orthodox when it comes to stimulus is the fact that governments put money in their economies