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Unformatted text preview: d industries grow sufficiently strongly to absorb the thousands of jobs that will be lost in the public sector? 5. The idea of an "expansionary fiscal contraction" is an oxymoron and makes no economic sense. Cutting government spending will reduce demand and bring about negative multiplier and accelerator effects on the UK economy Most critics of deficit reduction are Keynesian economists The Keynesian school argues that fiscal policy can have powerful effects on AD, output and employment when an economy is operating well below full capacity national output. Without a fiscal stimulus, an economy may be stuck in a semi-permanent recession and there is the risk of being stuck in a Liquidity Trap (monetary policy becomes ineffective). Current Account Deficits This relates to a situation in a country's overseas balance of payments where the amount by which money relating to trade, investment etc going out of a country is more than the amount coming in. This leads to a net outflow of money from a country's circular flow. The current account balance is made up of four separate balances: 1. 2. 3. 4. Balance of trade in goods Balance of trade in services Net investment income from external assets Transfers If inflows i.e. e...
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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.
- Spring '11