THE ECONOMIC CRISIS

The Economic Crisis and Government Economic Policy “case study”



The Economic Crisis and Government Economic Policy “case study”

Describe the 2008-9 recessions and identify the effects it had on the economy.

Continued escalation of prices of staple foods (around 15%), due to the effect called "second round" (translation by companies from increased costs of crude oil and raw materials along with wage increases the prices of manufactured products; abusive margins of companies and brokers and a totally inefficient administration and lack of mechanisms to control the ceaseless desboque with consequent rises in inflation and subsequent contraction of consumption.

Runaway inflation rates close to 6% and unbridled growth of foreign debt (d 2.5 billion U.S. dollars) and current account deficit (15% of GDP) for 2008 as a result of the above two points, with a consequent drop in state revenues Autonomies and loss of purchasing power of workers in a near future due to salary increases below the inflation rate or the freezing or reducing them.

Rise in interest rates by the European Central Bank to reach 4.5% in the last quarter of 2008 with the aim of trying to curb rampant inflation in the euro zone (close to 5%) the immediate impact on mortgages and bank loans due to increases chilling Euribor (up almost 6%); economic strangulation consequent extensive social and dramatic increase in delinquencies and embargoes banking collapse of securities (around the IBEX 10,000 points at the end of the year) and diversion of investment to fixed income and real estate.

Explain how fiscal policy could be used to encourage recovery from the recession.

Economic recession not only affects those who belong in the working class or the generation involved in labor. Children and the youth are getting affected by economic recession and poverty so much, that these children sometimes never acts their age or sometimes so insecure of their surroundings.

Most of the world's youth are working in the informal economy. In Latin America, almost all newly created jobs employing youth are in the informal economy. While in Africa, 93 percent of all new jobs are also informal. Workers in informal sectors usually work long hours, low pay, with poor working conditions. They don't have access to social protection or benefits and any freedom for associations, organizations or unions and collective bargaining.

There are also recession effects on the college students. During recessions, the economic out put is decreasing. What the government do is that they reduce taxes, while increasing the government safety net on spending. Because of this, education budgets were harder to make.

These government safety net on spending, constraints the daily education of the students. Course offerings, programs, and student activities may suffer budget cuts as programs compete for less education funds. Funding opportunities for student loans, scholarships, school employment, and aid may also weaken. During budget cuts, less education budget will lead to higher tuition fees to finance the missing funds. This case is particularly true for state subsidized institutions and public ...