The European Debt Crisis And The Expansionary Fiscal Policy

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The European Debt Crisis and the Expansionary Fiscal Policy

The European Sovereign debt crisis describes the era where various European countries were facing a government deficit which affected the Euro zone. There are numerous solutions that have been implemented to try eliminate this problem. One of the major solutions was the austerity fiscal policy which aimed to decrease the government expenditure in order to decrease the government budget deficit. This essay will outline the austerity policy and use the IS-LM curve to show how that was implemented by the Eurozone and the effect had on the Eurozone. This essay will furthermore outline the effect that the policy had and how it had an effect on the economy and the major effects and countries that triggered this crisis. The essay will then evaluate the effect that the monetary policy. This essay will then offer other recommendations on how to decrease the government budget deficit resulting in the economy returning to the natural rate of output.

In 1999, the Euro currency was executed as a medium of using a common currency amongst 16 countries in Europe. Countries had to have certain requirements in order to be of this system (Nemeth, n.d: 2). In 2000, Greece joined the other 16 countries in being part of the Eurozone. In spite of the fact that Greece was experiencing an extensively high budget deficit, the country entered the Euro Zone. (Nemeth, n.d: 1). A budget deficit is defined as the event where government
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