Optimal economic growth requires that there is enough effective demand to absorb the potential output the economy can generate. If demand is too high, it leads to inflation, which will be countered by restrictive monetary policies. If it is too low, investment will fall and lower actual GDP growth will also have detrimental effects on long run growth. It is shown that the Euro Area is presently compounding its economic woos by an excessively restrictive fiscal policy stance. A reform of the Stability and Growth Pact is proposed.
Economic Growth versus Austerity
COLLIGNON, STEFAN
2013-01-01
Abstract
Optimal economic growth requires that there is enough effective demand to absorb the potential output the economy can generate. If demand is too high, it leads to inflation, which will be countered by restrictive monetary policies. If it is too low, investment will fall and lower actual GDP growth will also have detrimental effects on long run growth. It is shown that the Euro Area is presently compounding its economic woos by an excessively restrictive fiscal policy stance. A reform of the Stability and Growth Pact is proposed.File in questo prodotto:
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