Sunday, February 5, 2012

Why should governments increase government spending during financial crisis?

What are positive effects of such policy?Why should governments increase government spending during financial crisis?In theory to increase the flow of cash into the economy and prevent recession. Of course this requires more borrowing, increasing national debt and therefore increasing the size of the repayments. If the government borrows too much this can also affect the country's credit rating, meaning interest payment increase.Why should governments increase government spending during financial crisis?The goal is to increase the money supply, making credit for small businesses and individuals wanting to make big ticket purchases, available to them. That in turn stabilizes unemployment and increases GDP.Why should governments increase government spending during financial crisis?They shouldn't and there aren't any.

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