Tag: Government

The Relationship Between Debt and Growth

Posted on by Rhys Williams

The debt-growth nexus has received renewed interest among academics and policy makers alike in the aftermath of the recent global financial crisis and the subsequent euro area sovereign debt crisis. Discuss whether there exists a tipping point, for public indebtedness, beyond which economic growth drops off significantly; and more generally, whether a build-up of public debt slows down the economy in the long run.

This essay explores the effects of debt on growth, by first examining the theoretical mechanisms that high debt can lead to lower growth before examining some of the empirical literature to see whether we observe such a relationship. [...]

The Costs and Distributional Effects of Unemployment

Posted on by Rhys Williams

The classical view on unemployment says that there are only unemployed people who are not able and willing to work at the going wage rate. So if people would accept a lower wage they would find jobs. In this view all unemployment is a short-term problem and the best solution is laissez faire – leave the market to find equilibrium to resolve the issue of unemployment.

If people accept lower wages then the costs of living will fall as firms do not need to charge such high prices, so in fact workers will find the lower wages are acceptable once they start work. [...]