Business Economics Essay Example | Topics and Well Written Essays - 1500 words

Business Economics - Essay Example Euro crisis is supposed to result in negative growth for the next upcoming six months. Apart from US, the British are encountering the problem of double dip recession (Winnett, 2011). Currently OECD is giving warning to the US government about an emerging economic slowdown that the country might have to encounter soon. OECD claims to derive such a result from the composite index of the leading indicators. Such alerts have been issued for the seven major economies. It is mostly using CLI instrument to get early signals of downturn from the upswings and downswings within the periodical growth cycle. Such an instrument will surely help OECD to send out early alerts to the economies (Major economies globally heading towards slowdown: OECD, 2008). Symptoms for such a slowdown will be continuous fluctuations in business cycles. Such fluctuations will linger for a long period of time. Slowdown in the euro zone will lose out the confidence of investors especially in the financial markets. Th is could be the main reason behind output contraction in the major economies. United States is already experiencing cyclical slowdowns. Such a trouble had not touched US economy in the last 10 years (Major economies globally heading towards slowdown: OECD, 2008). Preannounced liquidity shocks have been hitting the US economy. Due to such shocks US economy is undergoing unexpectedly large price changes. In recent times jumps in US treasury bonds have been identified (Jiang and George, 2011). Earlier in 1999, OECD had predicted much slower growth in the overall industrialization process for the United States. Accordingly there has a decrease in the short term rate of Federal Reserve Board (Wessel, 98). As per OECD, such a slow and weak growth for the United States is likely to continue till 2013. This will continue along with high unemployment (Winning and Parussini, 2011). The current economic crisis and the Federal government: There are two schools of thought on how the USA governme nt should deal with its current economic problems. One thought deals with the policy of significant deficit reduction that the Greek and Irish governments have implemented. And the other one deals with the substantive Keynesian stimulus package. The later aspect includes a reform of the tax system in order to make taxation more progressive (Kitromilides, n.d.). Policies of deficit reduction: Policies: During the financial crisis and huge debt crisis situation, governments of Greece and Ireland have taken some policies to surmount those crises. In the face of the huge accumulation of budget deficit, debt crisis, in 2010, the both the governments have taken policies to reduce these crises. At first both the governments have taken steps to reduce public expenditures and increase tax rates. This was a policy of fiscal consolidation plan. Along with this both the governments have asked for the financial assistance to IMF and EU. At the same time these governments have taken steps to init iate long-term structural reforms, such as, increasing competitiveness of the economies by improving employment and growth scenarios, enhancing private sector investments, and most importantly boosting the R&D sector of the economies (Kitromilides, n.d.). Explanations on effectiveness: These policies are still under the scrutiny, but they have been successful in the short term. The policy of reducing public expenditure