Th4.5: Reduce Fiscal Deficits and National Debts

Question 1

What has the UK been doing to decrease the national debt?

Answer 1

using a policy of austerity since 2010, where they attempt to decrease spending - they could also increase taxes

Question 2

What are the problems with the UK’s method of decreasing the national debt?

Answer 2

these are unpopular, could limit growth and reduce living standards and income equality

Question 3

What do free market economists say about this?

Answer 3

say that spending can be reduced by cutting out waste, but it is highly unlikely that these efficiency savings will make a significant difference

Question 4

On the other hand, opposition parties offer an alternative in the form of…

Answer 4

in the form of demand stimulus by high spending, which will cause economic growth and therefore bring about higher tax revenues - allow for budget surpluses and eventually a reduction of national debt

Question 5

What is another approach?

Answer 5

to simply rely on automatic stabilisers to allow the economy to grow so national debt/fiscal deficit will reduce as a percentage of GDP - main US approach after Global Financial Crisis

Question 6

One way to reduce national debt would be for the government to…

Answer 6

default on their loans but the economic cost of this is so large that governments only if it is the only option