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Stimulus or Austerity: Macroeconomic Analysis

Stimulus or Austerity: Macroeconomic Analysis

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Описание
The two camps of economists have different views concerning how to improve the economy in times of economic downturn. In contrast to those who consider government spending as an efficient strategy and support the approach based on additional government borrowing with a hope that this will help decrease the debt in the future, another group of economists, concerned with high government debt, which, as they believe, can inevitably undermine economic growth, supports austerity measures. Based on the developed debt to GDP ratio dynamics model, the authors examine whether the projected future economic growth (stimulated by government spending) is sustained with the resulting national debt. An approach to the problem of debt reduction and balancing budget is considered. The authors perform a series of simulations (based on US data) to forecast the evolution of the debt to GDP ratio over a 10-year horizon. The presented material contributes to the on-going debate about the government policy to boost the economy.