Austerity vs. Stimulus: an Economics Experiment

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As the world economies slowly recover from the worst man made money disaster in history, which affected indeed the whole world one way or the other, we are seeing different ways for the governments of the world to deal with this situation. Right now the competition between the countries of the world is to see who recovers first. Clearly there are some winners and some loser or it might be too soon to tell. Countries like China, India and maybe Brazil are at the forefront of the world recovery effort. These countries, which were considered developing nations or third world countries have emerged from the global economic crisis as the new face of world economic powerhouses. As the effect of monetary turmoil deepens, in Europe and United States; two conflicting economic theories and solutions for this crisis have emerged. One theory favors the “pumping of money” or stimulus money into the economy which in certain economists views represents a “stalled engine”, which needs more gas. The extra money means, people will have more money to spend, which in turn mean more demand for products which will lead to the creation of more jobs which will make the economy grow again hence stimulating the economy. The other theory is tightening of the belt or Austerity measures. In this method governments cut millions or even billions of dollars from it fiscal budget or spending plans. The cut not only come from government spending but also from cutting social programs like retirement and pension funds, cutting defense fund, also cutting cost in science and education, cutting of government contracts and cutting salaries of workers. Also massive layoffs of thousands of employees in the hopes of “cutting off extra fat” by controlling the spending and monetary work with what you have so to speak. (Schiff). Both are sound theories and have merits and research behind them but to say one way
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