Question

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1. You are the economic advisor to the presidential candidate in the next election. You are in charge of developing convincing arguments to support candidate’s policy platform. Country is facing recessionary environment.
   1. Give two reasons why your candidate should support bigger government and increased government spending. ( 4 points)

2. Give two reasons why your candidate should support lower government spending to fight recession. (4 points)

Answer 1

AS THE COUNTRY IS FACING RECESSIONARY ENVIRONMENT,GOVERNMENT SPENDING IS ALWAYS AN ARGUMENTATIVE ISSUE,PEOPLE WHO DO NOT SUPPORT INCREASED SPENDING DURING RECESSION WOULD BELIEVE THAT IT WILL HINDER ECONOMIC GROWTH EVEN FURTHER,WHILE PEOPLE SUPPORTING INCREASED GOVERNMENT WOULD THINK OTHERWISE

A.TWO REASONS FOR SUPPORTING INCREASED GOVERNMENT SPENDING WOULD BE

1)AS THE GOVERNMENT IS FACING A SITUATION OF RECESSION,INCREASED GOVERNMENT SPENDING WILL CREATE A MULTIPLIER EFFECT,AS THERE A LOT OF UNEMPLOYED PEOPLE IN THE COUNTRY,THE GOVERNMENT SHOULD INVEST IN DEVELOPING BETTER INFRASTRUCTURE,THIS WILL CREATE EMPLOYMENT OPPORTUNITIES FOR THE UNEMPLOYED,ONCE THEY HAVE JOBS THEIR SPENDING WILL INCREASE WITH INCREASE IN THEIR INCOME,WHICH WILL LEAD TO INCREASED AGGREGATE DEMAND.SO INCREASED GOVERNMENT SPENDING IN ONE SECTOR WILL BENEFIT THE OTHER SECTORS AS WELL,LIKE THE PRODUCTION SECTOR WILL BENEFIT TOO.

2)ANOTHER REASON FOR INCREASED GOVERNMENT SPENDING WOULD BE THAT,BY CREATING MORE EMPLOYMENT CAUSING OVER ALL DEVELOPMENT OF THE ECONOMY AND THUS WILL ATTRACT MORE INVESTORS WHO WILL BE READY TO INVEST IN THE COUNTRY,THUS INCREASING THE REVENUE AND ECONOMIC GROWTH OF THE COUNTRY,THE COUNTRY WOULD ALSO THEN BE CONSCIOUS ABOUT ITS SPENDING AND WOULD MAKE BETTER INVESTMENT DECISIONS

B.TWO REASONS FOR NOT SUPPORTING INCREASED GOVERNMENT SPENDING WOULD BE

1)DURING RECESSION A COUNTRY IS ALREADY FACING THE PROBLEM OF SHORTAGE ,WHERE IT HAS NO SAVINGS AT ALL,IN SUCH A SITUATION PAYMENT OF DEBT SHOULD BE THE PRIORITY AS THE DEBT IF NOT PAID KEEPS ADDING TO THE DEFICIT,IN SUCH A SCENARIO IF THE GOVERNMENT SPENDS THEN IN CASE OF NATIONAL EMERGENCY IT WOULD HAVE TO AGAIN BORROW FINANCE THUS FURTHER FALLING IN THE VICIOUS CIRCLE OF DEBT WHICH IS NOT DESIRABLE.

2)DURING RECESSION IF THE GOVERNMENT INCREASES ITS SPENDING,IN ORDER TO MAKE UP FOR THE COST IT WOULD HIKE UP TAXES OR INCREASE PRICE OF GOODS AND SERVICES,REDUCE PUBLIC UTILITIES ,THUS CAUSING FURTHER INFLATION AND REDUCED STANDARD OF LIVING OF THE PEOPLE,WHICH REDUCES ECONOMIC GROWTH OF THE COUNTRY.NO INVESTOR WOULD LIKE TO INVEST IN A COUNTRY THAT HAS POOR ECONOMIC GROWTH.