In 1937, John Maynard Keynes said “the boom, not the slump, is the right time for austerity at the treasury’. Contrary to this belief, economist Paul Krugman explained that if everyone in the economy reduced their spending then this could lead to ‘paradox of thrift’ because one person’s spending is another person’s income. Therefore, the government should be spending more. Government uses austerity policies to reduce the budget deficits by either spending cuts, tax increases or both. Government spending contributed to GDP and a major reduction in it can change future expectations about taxes and government spending , encouraging private consumption and resulting in overall economic expansion.
Recent economic crises in Europe and US have only given the world devalued currencies , little economic growth and sustainable amount of debt.
Portugal pensioners, schools and government workers will face the destruction caused by austerity measures. Portugals’s elderly are hit the hardest as this year the government intend to take another chunk of 1350 euros ($1755) out of their monthly pensions.Intime of crisis, every country has a certain way and procedure to deal with incase it faces an economic meltdown and many factors like population, GDP, growth and government policies can affect these actions. These factors are then weighed down by prior commitments made in previous budgets and political pressures. Austerity within itself is an extreme measure but if used carefully can yield the right results i.e. to take a country out of the economic mess.However, using it at times when its not required can have bigger negative impacts and can lead to a recession turning into a depression, which again is the bigger evil.
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