...FISCAL POLICY IN GERMANY AND IN GREECE DURING THE RECESSION IN 2008-2009 By Mohammad Waqas Approved _________________________________________ (……………………………..) A thesis submitted in partial fulfillment of the requirements for the degree of Bachelors of ……. May 2011 Abstract Recession has been a highlighted feature of the world economy over the past few decades. Recession has added importance to the discretionary fiscal policy because monetary policy and automatic stabilizers could not pull back the economy from recession on their own. The case of EU countries is of great significance in times of recession because of certain common policies which the member states have to follow. The research is theoretical in nature synthesizing previously done studies in the same field. Fiscal policy in Germany and Greece during the recession in 2008-2009 is being analyzed to come up with the better policy measure. TABLE OF CONTENTS Abstract……………………………………………………………………………….3 TABLE OF CONTENTS………………………………………………………….….4 1.INTRODUCTION ………………………………………………….………………5 2. OVERVIEW………………………………………………………….…………….9 3. RECESSION IN EUROPE 2008-2009…………………………………………..11 3.1. Recession in Greece………………………………………...…………...…..13 3.2. Recession in Germany……………………………………...…………...…..17 4. EU FISCAL POLICY………………………………………………………....….20 5. POLICY TOOLS………………………………………………………………….23 6. FISCAL POLICY IMPLICATIONS …………………………………………….25 6.1 Greece ………………………………………………………………………..25 6.1.1 Pre Crisis...
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...Escaping the Recession 2007 Is Creating Recession? Han Tran Principles of Macroeconomics Mihaylo College of Business and Economics California State University at Fullerton December 2, 2010 Abstract The Economic Recession 2007 is the second worst recession in American history. It starts out within the housing market. Then, it expands and harms the other business sectors clearly. To illustrate, the U.S GDP failed by around 7%. Americans struggles who laid-off so unemployment rate shoot up to 9.7%. Many retirees lose their money due to the failure of many investment vehicles. The stock market performance declines because companies go bankrupt. Faced the threat of another Great Depression, the government and Federal Reserve Bank immediately interfere to boost up the economy using many fiscal and monetary policies. These efforts definitely help to improve or at least lighten the crisis’s impact on households and businesses. However, economists are concerned by the potential risks of future inflation and debts. 1. Introduction It started out as a failure of the housing market only. However, unexpectedly and quickly expanded, it flooded the whole economy with bankruptcy, unemployment and failure of stock market and other investment vehicles. It is the Recession 2007 whose damages are just less than the Great Depression. The following paper primarily demonstrates the causation of the Recession 2007, the responded policies of the government or the Federal...
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...:-Done by Sunil Kumar and Ajeet verma Indian economy before us recession India had been growing robustly at an annual average rate of 8.8 per cent for the past five years (2003-04 to 2007-08). This was higher than the potential growth rate of output as estimated by the IMF. The strong Indian growth story, based on its structural strengths of a young population, skilled manpower, rising savings and investment rates, large unfulfilled domestic demand and globally competitive firms attracted significant investor attention in recent years. Recent high rates of economic growth have been the result of high levels of investment, rise in productivity supported by technological up-gradation and greater integration with global flows of trade, finance and technology. The challenge is to sustain these high growth rates while also preventing an unacceptable rise in income and spatial inequities and also eliminating absolute poverty in a given time frame. The answer to this challenge is in raising India’s potential rate of output growth by removing the binding constraints. We have also estimated the potential growth rate for India during the last decade based on HP filter technique (Hodrick and Prescott, 1997) and found that in the last three years, India had been growing above its potential growth rate. Figure 6: Potential GDP Growth and Output Gap (1997-08 to 2007-08) Note: Based on HP filter technique as proposed by Hodrick and Prescott (1997). Fears of over-heating...
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...Fiscal Policy and Its Implications in Germany Sarah Hembreee 2-1-4 ECON220F4WW Michael Lydon March 18, 2011 Fiscal Policy and Its Implications in Germany The governments use of their taxing and spending money controls the economical activity. In the US the fiscal policy is controlled by the legislative and executive branches of the government. In the European countries much of the power over the policy is controlled by the prime minister. Government spending and taxes are what affects the GDP and the fiscal policy. Figure 1 shows some of the effects that the fiscal policy has on the economy. Although we are in a recession right now, economist says that the only way to get out of this deficit would be to increase government spending. Consumers, investors, the government or an increase in exports is what causes spending to happen. Right now with the recession, consumers are decreasing their spending because of high debt and decreased income Exports can help depending on the income of the other nations and is they too are experiencing a recession then foreign income will be low(Heistein, 2011). Figure1. What are the effects on fiscal policy on the economy? | Budgetary Balance | Output | Unemployment | Inflation | Spending Increases | | | | | Spending Increases | | | | | Taxes Increases | | | | | Taxes Increases | | | | | Fiscal Policy- 2010(Euro economics) Because of these factors it seems that the government is going to have to be the...
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...The aggregate demand – aggregate supply model is used by economists to analyze the behavior of the macroeconomy in both the short run and the long run and aggregate demand in general refers to total spending by households, businesses, governments, and foreigners on domestically produced final goods and services. The aggregate demand curve (AD) describes the behavior of buyers of final goods and services in the aggregate. The aggregate demand – aggregate supply model allows us to see what factors influence prices and real output in the short-run, or as the economy proceeds through the business cycle. And now we will see how the aggregate demand effects economy in the short run by analyze the changes in aggregate demand can “move” the economy through the business cycle. As we can see in the diagream below, a decrease in aggregate demand moves the economy into recession with a rise in cyclical unemployment INFL MRAS SRAS E1 INFL1 AD yn y An increase in aggregate demand also causes a recovery that returns production to natural levels and reduces cyclical unemployment which is illustrated in the below diagram. INFL MRAS SRAS INFL1 E1 AD y1 ...
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...Chapter 5: Government Expenditure and Revenue by Ooi Soon Beng After studying this chapter, you should be able to understand: Public Budget Budget Deficits and Surplus Expansionary and Contractionary Fiscal Policy Discretionary and Automatic Fiscal Policy National Debts and Its Issues and Misconceptions Problems with Fiscal Policy : Macroeconomics According to Keynes, government has to intervene to stabilize the economy. Stabilization can be achieved in part by manipulating the Public Budget to increase output and employment or to reduce inflation. The Budget outlines the government’s taxation and expenditure plans for the coming fiscal year. The Ministry of Finance are responsible for the preparation of the budget. Sources of Revenues: Direct taxes on individuals and companies Indirect taxes on goods and services (gasoline, alcohol, tobacco, etc) Non-tax revenue (stamp duty, licenses, permits, etc) Malaysia: Sources of Revenue (in RM) 1990 2013 2014 Direct Taxes 35.2% 56.5% 59.1% Indirect Taxes 36.7% 16.6% 17.2% Non-Tax Revenue 28.0% 26.9% 23.7% Total Revenue 29,521m 207,913m 224,094m Source: Ministry of Finance Categories of Expenses: Operating Expenditure (emolument, pensions, debt servicing, grant to states, subsidies, supplies, scholarships, etc) Development Expenditure (security, social services, economic services, expenditure ...
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...Macroeconomics Assignment How a rigid Fiscal Policy saved Australia from the Global Financial Crisis TABLE OF CONTENTS: |Item |Heading |Page Number | |1. |Introduction | | |2. |Theoretical Concepts: | | | | | | | |2.1 Economic Growth | | | |2.2 Aggregate Demand and Aggregate Supply | | | |2.3 Fiscal Policy | | | |2.4 Monetary Policy | | | |2.5 The Impact of Unemployment | | |3. |Related Policy Issues | | |4. ...
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...The Fiscal Mismanagement and Fixed Exchange rate were the cause of Argentina 2001 Crisis Summary: Argentina’s economy verge to a state of collapse in the year of 2001, but the economy started to struggle with an economic recession in 1997. The fiscal mismanagement paired with the fixed exchange rate policy conducted the country to a financial crisis. IMF policies in lending to a country with struggling economy made people think if IMF was the responsible for the default crisis that affected Argentina in 2001. Public Deficit – The Major “devil” As economic reforms were happening in Argentina, the country started to face large capital inflows, as it was able to borrow large capital amounts at lower interest rates because of the currency pegging, in the global market. However the government fiscal policies failed to maintain surpluses during economic growth period and actually even during this period the government budget deficits were large. Fiscal mismanagement can be considered as the main reason for the economic crisis, which includes: * Weak fiscal policy – the fiscal policy should have been adjusted during times of economic rapid growth in order to achieve fiscal surpluses and give a cushion in government accounts against future downturns. Lax in tax collection and high budget expenditures led the government budget to deficits which combined with the economic recessions led to long-run budget constrains because the deficit was unsustainable. * Structural Reforms...
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...are still the dominant features of the US economy. Growth during 2011 has been at a very slow pace, and slightly improved Q4 figures just released are likely due to temporary factors. While there has been real, if modest job growth in each of the last five monthsi, much of the drop in the official unemployment rate is due to unemployed workers giving up looking for j obs. There is wide agreement that any recovery is likely to be sluggish over the next couple of years. For example, Paul Krugman writes, "...the state of the economy remains terrible... But there are reasons to think that we're finally on the (slow) road to better times."ii The recovery, at least in terms of economic output, may continue and even strengthen -- eventually. With profits restored at the expense of wages and social benefits1, business investment could continue to increase. With almost no new housing construction and a growing potential demand from multi-family households, there could be a new housing boom at some point. But there is still a strong possibility, in the immediate future, of a new financial crisis and resumption of the downward economic spiral of 2008-2009. This danger comes from: * The overhang of unpayable household debt, particularly in home mortgagesiii. * The global capitalist crisis, most immediately the European crisis, which can destabilize the US financial system, and will reduce the market for US exports. * Government policy which forced spending cuts at the federal...
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...worrisome, as is the rest of the world. Unemployment is at a steady high, there’s a staggering inflation and the recession continues to effect people after so many years. The 2008 Financial Crisis had a more detrimental impact on advanced economies like the US than on developing economies like China and India, leading to wider projected disparities between the future GDP growth rates of the advanced and developing economies. According to Trading Economics, “The Gross Domestic Product (GDP) in the United States expanded 2.70 percent in the third quarter of 2012 over the previous quarter. Historically, from 1947 until 2012, the United States GDP Growth Rate averaged 3.2 Percent reaching an all-time high of 17.2 Percent in March of 1950 and a record low of -10.4 Percent in March of 1958.Unemployment Rate in the United States decreased to 7.70 percent in November of 2012 from 7.90 percent in October of 2012”. The recovery of the US job market has not taken off as many had expected and recently the economy added a disappointing number of available jobs. With the lack of jobs, unemployment rates continue to be an issue. The economy has lost more jobs than it has earned in the last four years as a result of the great recession. In the United States current economic struggle it is hard not to compare this situation with the worst economic crisis, the Great Depression. The US job market is increasing but not at a pace that can overturn the skeptics regarding an economic recovery. There...
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...POLICY AND ANALYSIS Name Course Tutor Date President George W. Bush’s and President Obama’s economic policy The US economy had experienced a series of depression in the past years but it was worst hit by the major terrorist attack of the September 11, 2011 that not only shook the nation but also the world at large. The realities of the recession started hitting the nation officially in December 2007, signaled by the collapse of the housing market and subsequent losses on mortgage related financial assets which in turn resulted to great stress and significant turbulence in the financial markets. All this resulted to an overall fall in the broader economic activity. In an attempt to respond to the worsening economic conditions, the administration lowered the federal funds rate by half the percentage point and as the crisis intensified, Bush’s government instituted the federal tax cuts on all the tax payers (Palley, 2011). The recession came to an end in June 2009 but the resultant economic weakness continued to be experienced in the nation with significant high rates of unemployment levels. There were severe job losses, a fall in family incomes and a rise in poverty levels which impacted negatively on the social life of many Americans. The economic environment also suffered severe losses in terms of drastic fall in investments due to uncertainties in the economy’s future. The adverse effects and subsequent fall in the trading activities led to significant falls in the nation’s...
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...Money, Banking and Monetary Policy Lashawn Lyles Principles of Economics Devry University Professor William Cheng April 14, 2013 The United States is the leading economy of the world however we have been in a recession since 2008. Last year, unemployment was at a record high. Today the labor market is gradually improving. Payroll employment has increased by 175,000 jobs per month on average, and the unemployment rate declined 0.3 percentage point to 7.9 percent over the same period. Cumulatively, private-sector payrolls have now grown by about 6.1 million jobs since their low point in early 2010, and the unemployment rate has fallen a bit more than 2 percentage points since its cyclical peak in late 2009. In spite of these gains, however, the job market remains generally weak, with the unemployment rate well above its longer-run normal level. About 4.7 million of the unemployed have been without a job for six months or more, and millions more would like full-time employment but are only able to find part-time jobs. High unemployment has substantial costs, including not only the hardship faced by the unemployed and their families, but also the harm done to the vitality and productive potential of our economy as a whole. The loss of output and earnings associated with high unemployment also reduces government revenues and increases spending, thereby leading to larger deficits and higher levels of debt. The problem started...
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...International Business School Case Write-Up The Fiscal Mismanagement and Fixed Exchange rate were the cause of Argentina 2001 Crisis Summary: Argentina’s economy verge to a state of collapse in the year of 2001, but the economy started to struggle with an economic recession in 1997. The fiscal mismanagement paired with the fixed exchange rate policy conducted the country to a financial crisis. IMF policies in lending to a country with struggling economy made people think if IMF was the responsible for the default crisis that affected Argentina in 2001. Public Deficit – The Major “devil” As economic reforms were happening in Argentina, the country started to face large capital inflows, as it was able to borrow large capital amounts at lower interest rates because of the currency pegging, in the global market. However the government fiscal policies failed to maintain surpluses during economic growth period and actually even during this period the government budget deficits were large. Fiscal mismanagement can be considered as the main reason for the economic crisis, which includes: * Weak fiscal policy – the fiscal policy should have been adjusted during times of economic rapid growth in order to achieve fiscal surpluses and give a cushion in government accounts against future downturns. Lax in tax collection and high budget expenditures led the government budget to deficits which combined with the economic recessions led to long-run budget constrains because the deficit...
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...back their mortgage even though they were high rise candidates. “Home loans were created with adjustable rates and promises to hold off payments for two years, giving consumers false hopes that their homes would more affordable in the future. When the future came, those people were unable to make payments and foreclosures spread across the country like a wildfire” writes Munday (2010:01). Meaning that the average US family only owned a small percentage of their home while the banks owned the majority the banks realized they were losing money by selling the houses for less than their mortgage price since house prices were dramatically down, they then foreclosed. What followed was an escalating foreclosure rate panic and many banks and hedge funds, who had bought mortgage-backed securities on the secondary market (which is allowing banks to sell mortgages”, giving them new funds to offer more mortgages to new borrowers) realized they were facing huge losses. The only way out was for massive policy responses and this is what will be dealt with in this essay, what these policies were and how they responded. Questions...
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...Issues Earlene Kirby Instructor: Deborah McCafferty The financial crisis of 2008, begin with the collapse in the housing prices. Which led to defaults on mortgage backed securities. To understand the monetary policy and the fiscal policy is really very important in containing the damage from the current crisis from that point on. How the monetary policy was contributed to the financial crisis that had created potential for high inflation, by beginning to tighten policies with its standard procedures of raising its target on interest rates, the Feds went in the opposite direction to far. The monetary policy can help to relief some of the problem that was impacted on the “fiscal stimulus” which lasted for a extended period. How the fiscal policy contributed to the financial crisis John Mayard Keynes once wrote “Practial men who believe themselves to be quite exempt from any intellectual influences, are the slaves 0f some defunct economist”. Keynes would most likely to amit that he is now the defunct economist if he could communicate with us today. Keynes is the person whom introduced the “fiscal stimulus”. Even though the fiscal stimulus program was not large enough to help the economy. But by using the stimulus to send checks to the people, it set back on the capital spending funds for goods and services, which was not good. The crisis which has spread though the policymakers has compound their mistakes...
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