ECONOMICS

Bridging Business Economics

Table of Contents

OECD predictions concerning the USA economy1

Schools of thought on the current economic situation2

Deficit reduction2

Keynesian stimulus package2

Credit Crunch4

References6

Bridging Business Economics

OECD predictions concerning the USA economy

According to Bloomberg (2011), owing to US's dwindling ability to repay its debt, the rating agency Standard and Poor has ranked it lower than AA+. For the short term, Standard and Poor has affirmed the ranking as A-1+. Debt refers to the amount owed to someone for the funds borrowed. In other words, it is an obligation between two parties where the borrower has to pay the lender. A country's debt refers to the amount that a country has to pay its debtors. Moreover, the budget deficit for the country has increased beyond its GDP for the fiscal year. Budget deficit refers to the situation where the government expenditure for a certain year increases the government revenue earned for that year.

According to OECD (2011), the primary assumptions behind this prediction include the effect of the country's political war on its ability to repay the debt it has taken already. The budget deficit for the country will increase because the fall in the top-tier rating would mean that the cost of borrowing for USA will increase. Moreover, the drop in economic activity coupled with a sharp decline in revenues means that the government debt would increase, and the GDP would remain low.

Moreover, the decline in GDP and budget deficit prediction has its background in the high rate of unemployment which seems to continue for the coming year. A decrease in the unemployment rate would mean an increase in the economic activity and production levels. This will require investment and in the current economic scenario coupled with the loss of AAA ranking, investments in the economy, either by the private investor or by public, seems unlikely, at least in the short run.

Another major threat to the fiscal stability in the US is the significant increase in the government spending. For this, US government has taken multiple sector healthcare reforms to bring the ever increasing healthcare expenditure down. The assumptions taken by OECD are not to suggest that US economy is not recovering, in fact, they point out the fact that it is recovering at a slow pace owing to the many macroeconomic problems faced by the country.

Schools of thought on the current economic situation

Deficit reduction

The Greece government has followed the economic program given by the International Monetary Fund. The Greece government is very ambitious about reducing its budget deficit in the midst of the economic difficulty it is facing (McCully 2010, p. 1). For this purpose, the government has raised the tax percentage. Earlier, the tax administration in Greece was poor, and government practices were essentially fragile. It has brought structural reform in many areas. These include not only the financial sector and administration but also the labour market and the pensions. The Irish government is targeting to lower the budget deficit by 3% till ...