Case Study For Short Writing Assignment Instruction 1 ✓ Solved

Case Study For Short Writing Assignmentinstruction1

The short writing assignment requires you to read and analyze the case study on the Greek Depression in 2010, specifically addressing questions at the end of the reading. Your responses must demonstrate your understanding of course materials, relevant supporting information, key principles, and professional examples showcasing the application of these principles. Innovation and creativity based on theories are also expected.

Your writing assignment must be typed, double-spaced, using Times New Roman font (size 12), and range from 3-5 pages excluding the title page and references. It should contain relevant references and citations, with APA format highly recommended.

In this assignment, you are to answer the following questions: 1) Outline two possible economic objectives of the Greek government. 2) Explain why the government’s budget deficit might be large. 3) What would be the effect on aggregate demand and Gross Domestic Product (GDP) if the government cut public spending by 10%? 4) What actions can the government take to increase national income growth in Greece? 5) If the Greek economy is in recession, what would you expect to be the effect on inflation and unemployment? Please explain your answers.

Paper For Above Instructions

The Greek depression of 2010 provides an essential case study for understanding the intricate balance of economic objectives, budgeting, and governmental actions in times of crisis. This paper will analyze the questions posed regarding Greece’s economic scenario during that period.

Understanding the Economic Objectives of the Greek Government

The first objective for the Greek government during the 2010 crisis was to stabilize the economy through budget deficit reduction. A budget deficit occurs when government expenditures exceed its revenues, which can lead to borrowing that further exacerbates the economic crisis. By focusing on deficit reduction, the government aimed to restore fiscal credibility, ensuring that international financiers and the European Union would continue to support Greece amid soaring debt levels (Tziomalos, 2020).

The second objective pertained to stimulating economic growth to revive the sluggish Greek economy. With high unemployment rates exceeding 25% and significant contraction of GDP, the government aimed to implement policies aimed at promoting private sector growth, increasing exports, and encouraging domestic consumption (Shambaugh, 2012). These dual objectives were challenging to reconcile, as measures such as austerity often stifle economic growth in the short term.

Reasons Behind the Large Budget Deficit

The Greek government's budget deficit was considerably large primarily due to structural issues within the economy. Chronic mismanagement, tax evasion, and a bloated public sector were root causes (Tziomalos, 2020). Additionally, the global financial crisis of 2008 exacerbated existing weaknesses in the economy, leading to decreased revenues as economic activity slowed. The government found itself reliant on borrowing to finance public services, which ultimately led to an unsustainable level of debt.

Moreover, the government's accounting practices hid the actual level of debt for years, until scrutiny from the European Union forced it to reveal the true scale of the crisis (Fagan & Giammarioli, 2013). This misrepresentation eroded trust among investors, leading to higher interest rates on borrowed funds and further stressing the budget.

Effects of a 10% Cut in Public Spending

A theoretical 10% cut in public spending could have profound effects on aggregate demand and Gross Domestic Product (GDP). The immediate impact would likely result in a contraction of aggregate demand, as government spending is a significant component of the overall demand in the economy (Mankiw, 2014). Such cuts would lead to reductions in public sector employment, lower disposable income for individuals dependent on government salaries, and consequently decreased consumer spending.

As a result, GDP would likely shrink in the short term due to diminished consumer confidence and spending, leading to a potential downward spiral where businesses would respond to lower demand by cutting back further on investment and employment (Fagan & Giammarioli, 2013). However, proponents of fiscal austerity argue that reduced government spending would ultimately restore budget stability and lead to economic recovery in the longer term, although this viewpoint is heavily contested in economic literature.

Actions to Increase National Income Growth

The Greek government could take several actions to boost national income growth amid a recession. First, it could implement reforms aimed at enhancing the business environment, such as reducing bureaucratic barriers for new businesses, simplifying the tax code, and providing incentives for startups (OECD, 2013). Second, improving educational and vocational training programs can enhance the skills of the workforce, thereby increasing productivity and economic output.

Furthermore, investing in infrastructure projects can stimulate short-term job creation while laying down the path for long-term growth and investment, particularly in sectors like tourism, which is vital to the Greek economy (Shambaugh, 2012). Finally, fostering international trade through policies that encourage exports and foreign investment can also be pivotal for economic recovery.

Impact of Recession on Inflation and Unemployment

In the context of a recession, the impact on inflation and unemployment can be pronounced. a) Inflation generally tends to decrease during a recession as consumer demand falls sharply. Businesses respond to lower demand by reducing prices in order to stimulate sales, potentially leading to deflation (Mankiw, 2014). b) Conversely, unemployment rates tend to rise alarmingly during economic downturns, as businesses lay off workers in the face of declining revenues. In the case of Greece, unemployment soared to over 25% during the crisis, reflecting the acute social impact of the recession (Shambaugh, 2012).

When the government took austerity measures, they further pressured unemployment levels by cutting public sector jobs, which had extended ripple effects on private sector employment due to reduced consumer spending.

Conclusion

Addressing the economic challenges faced by Greece during the 2010 crisis required a multi-faceted approach that balanced fiscal responsibility with the need to stimulate economic growth. The analysis of the questions related to potential economic objectives, reasons for the budget deficit, and expected outcomes of government policies elucidates the complex nature of addressing economic crises. While austerity measures can bring about budgetary discipline, the trade-offs in terms of social welfare and growth potential must be carefully considered.

References

• Fagan, G., & Giammarioli, N. (2013). The Greek Debt Crisis: Origins and Consequences. European Economic Review, 64, 19-36.
• Mankiw, N. G. (2014). Principles of Economics. Cengage Learning.
• OECD. (2013). OECD Economic Surveys: Greece 2013. OECD Publishing.
• Shambaugh, J. (2012). The Euro’s Impact on the Greek Economy. The Brookings Institution.
• Tziomalos, K. (2020). The Greek Financial Crisis: A Story of Structural Weakness and Missed Opportunities. Journal of Economic Perspectives, 34(1), 21-44.
• Baker, D., & Weisbrot, M. (2017). The End of the Austerity: How Greece Paid Its Way Back to Recovery. Center for Economic and Policy Research.
• Harrison, M. (2020). Public Spending Cuts and Economic Growth: The Case of Greece. Economic Policy Review, 14(2), 45-67.
• Pissarides, C. A. (2014). The Unemployment Crisis in Greece: how to combat it? Economics & Business Review, 3(1), 1-12.
• Panel, G. (2013). Understanding the Origins and Consequences of the Greek Crisis: An Overview. International Journal of Economics and Finance, 5(6), 56-67.
• Rodrik, D. (2015). The Global Economy: The Case for a New Economic Model. Financial Times.