60-Twin_Deficits

High levels of government debt threatens financial

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Unformatted text preview: f debt to repay better to make a sizeable reduction in the deficit now rather than burden succeeding generations 4. There are doubts about the value of the fiscal multiplier and effectiveness of fiscal stimulus policies. Monetary policy (low interest rates and a lower exchange rate) can continue to support the growth of demand even if fiscal policy is being tightened. 5. A debt reduction policy will enhance the UK's macroeconomic policy credibility, improve confidence and provide support to an economic recovery Arguments against deficit reduction 1. UK Government bond yields (interest rates) are low it is sensible for the government to borrow now especially to fund important infrastructure investment as a boost to AD 2. Deep cuts in spending will derail a fragile economic recovery / bring about a double dip and another recession will make the fiscal deficit worse in 2012-15 3. Let monetary policy do the job of controlling inflation don't slash and burn public spending 4. Doubts about resilience of the private sector will businesses an...
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This note was uploaded on 02/08/2012 for the course ECO 51844 taught by Professor Sabet during the Spring '11 term at FIU.

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