The economy has been suffering through a recession for over a year and the gover

Question

The economy has been suffering through a recession for over a year and the government is desperate for solutions. Elections are coming up and the current administration is in danger of being replaced if something isn The economy has been suffering through a recession for over a year and the government is desperate for solutions. Elections are coming up and the current administration is in danger of being replaced if something isn The economy has been suffering through a recession for over a year and the government is desperate for solutions. Elections are coming up and the current administration is in danger of being replaced if something isn

Explanation / Answer

1. Govt can offer the various tax exemption and increasing the allowances and unemployment benefits to the people. Other welfare activities also be pursued by the govt to inject the more purchasig power. But such benefits might lead to inflationary pressure in the economy. These benefits might give rise to demand for the consumption and approriate investment initiative would remain unaddressed. Hence, giving fillip or support to investment activities may produce the desirable results to economy.

2. Govt expenditure would increase the budget deficit and national debt. EU countries have seen similar spectre in recent time. Domestic sources of fund for expenditure may produce the some desirable results but in the over the period of time such action would compete for fund in the market with private sector and crowding out effect can be seen and growth would be retarded in the near future.

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