Economics Tuition – Video by Economics Focus

This e-learning video developed by JC Economics Tutor Simon Ng of Economics Focus is examining the strengths and limitations of austerity measures in the European Union (EU), which refer to the government policies that focuses on reduction in budget deficit via spending cuts or tax increments. The question requires students to explain the policy mechanism and consider a list of determining factors that affect the effectiveness of austerity measures, like the size of multiplier.

Amidst the slow growth in the European Union (EU), there is persistently high budget deficit and ballooning public debt which have become major concerns for many governments in the EU. As a result, they have implemented ‘austerity measures’ to reduce their budget deficit by raising taxes and cutting back on public spending, so as to reduce their debts. Explain what would limit the effectiveness of the austerity measures in the EU. [10]

Analysis of The Question

For this question, the requirement of the question is to derive the factors that would limit the EU from implementing prudent fiscal measures and this can be done by examine the variables that would affect the effectiveness of various governmental policies

Source of Information

Part of knowledge needed for this question:

  • Determinants and types of government expenditure which includes ordinary and development government expenditure under the Theory of National Income Determination

  • Multiplier size in limiting the effectiveness of contractionary fiscal policy

  • Saving in limiting the effectiveness of contractionary fiscal policy