A35
CHAPTER 38 – IMPACT AND PROBLEMS OF MACROECONOMIC
POLICIES
Question Remarks
PROBLEMS FOR POLICY MAKERS
EXTRACT A: VIEWS DIFFER ON THE VALUE OF FISCAL DEFICIT
REDUCTION
In response to the Global Financial Crisis, there was general
agreement in 2008-09 that government borrowing should be
allowed to rise. But by 2010, with economic growth returning,
policymakers did not want fiscal deficits and national debt to get
out of control.
At the time many economists agreed, but views have now
changed. 'We've learned over the past 10 years that fiscal policy
can have pretty powerful effects in deep recessions when central
banks have hit very low policy interest rates,' said Alan
Auerbach, professor of economics at Berkeley. 'We've also
learned, at least from the experience in the UK and the US, that
we would have benefited from turning less immediately to
measures aimed at fiscal deficit reduction.'
'Economies do not self-stabilise,' said Olivier Blanchard, senior
fellow at the Peterson Institute for International Economics.
But politicians in the developed world still stress the importance
of reducing government deficits and cutting debt, particularly if
there appears to be little pare capacity in the economy. And,
although interest rates on debt issued by many governments,
including long-term debt, remain extremely low, policy makers
say they cannot rely on this being repeated.
EXTRACT B: THE CHALLENGE LOOMING FOR CENTRAL BANKS IN
2018
In December 2017, three major central banks made monetary
policy decisions, The US Federal Bank raised interest rates for
CHAPTER 38 – IMPACT AND PROBLEMS OF MACROECONOMIC
POLICIES
Question Remarks
PROBLEMS FOR POLICY MAKERS
EXTRACT A: VIEWS DIFFER ON THE VALUE OF FISCAL DEFICIT
REDUCTION
In response to the Global Financial Crisis, there was general
agreement in 2008-09 that government borrowing should be
allowed to rise. But by 2010, with economic growth returning,
policymakers did not want fiscal deficits and national debt to get
out of control.
At the time many economists agreed, but views have now
changed. 'We've learned over the past 10 years that fiscal policy
can have pretty powerful effects in deep recessions when central
banks have hit very low policy interest rates,' said Alan
Auerbach, professor of economics at Berkeley. 'We've also
learned, at least from the experience in the UK and the US, that
we would have benefited from turning less immediately to
measures aimed at fiscal deficit reduction.'
'Economies do not self-stabilise,' said Olivier Blanchard, senior
fellow at the Peterson Institute for International Economics.
But politicians in the developed world still stress the importance
of reducing government deficits and cutting debt, particularly if
there appears to be little pare capacity in the economy. And,
although interest rates on debt issued by many governments,
including long-term debt, remain extremely low, policy makers
say they cannot rely on this being repeated.
EXTRACT B: THE CHALLENGE LOOMING FOR CENTRAL BANKS IN
2018
In December 2017, three major central banks made monetary
policy decisions, The US Federal Bank raised interest rates for
