You are asked to analyse the economic situation in Greece since the financial crisis, the effects the austerity measures have had and may have on the economy, and provide a recommendation to future policy makers.
Alternatively, as discussed in class, you are free to evaluate the austerity programme of another country of your choice, following the same structure as below.
Task details and marking grid
1. By way of introduction, provide a short overview of the Slovenianausterity programme, and the justification that was given for it.
2. Shortly describe, using diagrams, equations and text, the equilibrium level of national income in the Keynesian Cross, the IS/LM model and the AD/AS model.
3. Shortly describe, with reference to the Keynesian Cross, the multiplier effect and automatic stabilisers.
4. Making extensive use of academic literature, explain
• how the size of the multiplier effect could be determined by factors both in the goods and the financial market.
• how the size of the multiplier effect could differ across fiscal measures, i.e. different tax- or spending measures.
5. Using above descriptions and explanations, discuss the effects of austerity programmes on public debt, economic growth and unemployment.
• Take into account that governments are faced with high debt levels and low growth at the same time.
• Form a view on the short- and the long run.
• Use theoretical and empirical academic and reputable business literature as sources to form a view and form your argument.
6. Conclude: Was it advisable for Slovenia to conduct a policy of austerity measures during times of slow growth, should it have delayed its austerity measures, or should it have turned to stimulation (i.e. expenditure) policies?
• The conclusion must be clearly your own.
• Your conclusion must be based on above discussion.
• Take into account the short run and the long run, and all stakeholders in the economy.
7. Acknowledge all your sources fully and according to Harvard style.
8. Write a coherent academic report. Format your report appropriately and professionally with a title page, contents, page numbers, and clear tables and diagrams with titles, numbers and sources.
- Write a coherent academic report; do not answer question by question.
- As the homework is to be submitted electronically all diagrams need to be created electronically, too.
- All figures and tables must be fully labelled, numberedand have a title.
- Please use MS Word's Equation editor to create equations.
- Have a title page and a contents page, and separate lists of tables and figures.
- All sources must be acknowledged according to Harvard style. The references in this text and the reference list below follow this style.
- Do not forget page numbers.
Preview Container content
Table of Contents
Descriptions Page No.
Objective of the paper 4
Greece austerity programme: an overview 4
Austerity vs. stimulus policy debate 5
A KEYNESIAN Cross diagram model: 6
Multiplier effect 7
Classical economics believed in austerity program 8
AD – AS model 9
Long run equilibrium 10
Impact of Austerity program in Greece 11
Recommendations and Conclusion 13
Greece was very badly hit by the recent financial crisis. The debt burden in Greece has mounted exponentially. Greece government continuously approved the austerity measure aiming to smooth out the way for bailout. But the government has repeatedly projected the austerity program as the price that lenders want to save Greece economy from a devastating economic turmoil. The approval of the austerity measure caused overwhelming rejection from the citizen, violent protest and massive social unrest. Anti-austerity demonstrations in the form of violent protest become the regular feature not only in the streets of Athens but also in many other cities across the country. After the long years economic crisis, financial chaos and uncertainty, the economy again slipped to recession during the recent times. The GDP has dropped by 30% from 2008 to 2013 and one million jobs have been slashed. Currently Greece has the highest unemployment rate in European Union. This is the only country in European Union where the minimum wage has been slashed. As the economic and social state of the economy is not convenient to progress, the nation has observed massive brain drain during the last five years.
After implementing several austerity measures in the last few years, Greece failed to revive or improve the health of the economy. With the fear of losing the desperately needed new bailout package, Greece prime minister again approved some new austerity measures. As a consequence the lives of millions of Greek people will become harder. The common people of Greece are already struggling with poor access to healthcare, huge cut in pension and other social benefits, significant reduction in the salaries of the public sector employees and substantial rise unemployment. In the backdrop of such a human crisis, the announcement of the new austerity program will further increase the economic woes.