Dr. Raghuram Rajan, in a speech in July 2015 warned that the world was slipping into recession. The events in Greece justified what he said. The ratio of government borrowing to GDP was very high in case of Greece. (i) What in your opinion led to such an event as in Greece? (ii) Explain the chain effect. (iii) What is the remedy for the above situation? What economic value is highlighted. experts please help?
Dear Student
(a) The main reason for such rescission in Greece is High Fiscal Deficit.
(b) Chain Effect -
More Borrowing >.Higher Interest Rate > More Interest > Lesser amount with government for development projects > Low Income > Further Borrowing > DEBT TRAP
(c) Remedy for the above situation is to limit the fiscal deficit to a manageable limit.
(d) Economic value highlighted is fiscal discipline.
Regards
(a) The main reason for such rescission in Greece is High Fiscal Deficit.
(b) Chain Effect -
More Borrowing >.Higher Interest Rate > More Interest > Lesser amount with government for development projects > Low Income > Further Borrowing > DEBT TRAP
(c) Remedy for the above situation is to limit the fiscal deficit to a manageable limit.
(d) Economic value highlighted is fiscal discipline.
Regards