1. Austerity is the reduction in the deficit financing through reducing the public services that are provide to the citizens. The reduced government spending through provision of less public goods help to avoid deficit financing (Joshua, 2). On the other hand, economic growth is the increase in the total output in the economy. It is argued that austerity policies hinder economic growth since reduced deficit financing lead to less employment hence output in the economy reduces. Another policy that Obama administration has put in place to facilitate austerity is to reduce government spending in some sectors of the economy Instead, the administration has promised to offer technical support and advice on investment. This has played a role in reducing deficit financing to promote growth in the economy; Obama has put in place a policy to eliminate the tax levied on the payrolls and the low income earners. This has encourage low income earners to seek for jobs instead of relying on the benefits provided to the unemployed and also the reduced payroll tax has encouraged the employers to employ more people. Increase unemployment has led to economic growth.
2. Some of the Keynesian policies include tax cut. Tax cut could encourage spending, hence facilitating investment and hence economic growth. Another Keynesian policy is deficit financing (Joshua, 3). Deficit financing avails money for people to spend and therefore increasing demand in the economy. This encourages investment hence employment and growth of the economy occurs. Expansionary policies of ensuring low borrowing interest rates are another Keynesian policy (Joshua, 2). The low cost of borrowing encourages investors to borrow for investment which leads to an increase in the output of the economy.
3. The Keynesian policies ignored are actually effective if implemented. First, reducing the tax levied on individuals avails more money for consumption (Joshua, 4).. This increases demand hence stimulating production and increased output leads to higher economic growth. Deficit financing is another Keynesian policy. This is why the government funds development projects through borrowed funds. This creates employment in the projects and the output produced from the projects leads to economic growth. In addition, the increased employment creates demand in the economy hence stimulating growth. The other policy is putting in place low interest rates (Joshua, 4). Low interest rates means that the costs of borrowing funs for the investment are low and more investors will access funds and hence invest. Increased investment increases output and hence economic growth.
4. One of the reasons why Obama did not pursue the above policies is his belief of the fact that they are risky (Joshua, 5). He wishes to pursue policies that he thought were certain. Another reason why the administration did not adopt the policies is that Obama aims at challenging the previous politicians in the use of some of the policies (Joshua, 5). The other reason of failing to adopt the policy is that Obama has always aimed at facilitating change in all activities. Therefore his administration has taken this course as a way of having a change in the policies applied in the economy.
Work cited.
Joshua G. lucky or good? The truth about Obama recovery. Retrieved fromhttp://www.businessweek.com/articles/2012-03-21/lucky-or-good-the-truth-about-the-obama-recovery March 2012.
