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By M.B.Jithya, Aadhavan Somappa.R, N.Siva krishna reddy, M.Abdula Ansari, Shringar Manjari Tiwari, G.Kumar babu.
Contents
Keynesian theory, Eurozone crisis, Feasibility of Keynesian theory, Relevance of Keynesian theory to crisis, How to overcome crisis, How it will effect India's economy, Conclusion.
Two components Aggregate demand Aggregate supply According to Keynes full employment situation is equal to AD=AS. This point is known as effective demand.
CRITICISM
In the under developed countries there are so many other factors which are responsible for unemployment, like over population and lack of skill. Perfect competition is not found in real world. In the long run its chances of success are limited. It is not applicable in socialistic economy.
Euro zone is the economic and monetary union of member countires of europe who have adopted euro as their currency.
The countries who use euro as their currency come under Euro Zone.
The Euro Zone formed in late 90s.They had formed a European Central Bank.
When any country in Euro Zone needs infrastructure development it will get funded as a debt by the european central bank in form of government bonds . The idea that euro zone started was to develop weak countries like greece to fund it with cheaper interest rates and develop the country economically.
Contd
The PIIGS(Portugal, Italy, Ireland, Greece, Spain) which are weak countries borrowed money from European Central Bank and spent it recklessly. The fiscal agendas now they had trouble repaying these loans. Now these countries became defaulters. Due to this panic situation which alarmed investors , they are now investing in safe options like government bonds. Due to this the overall stocks collapsed in these countries which had negative effect on both country as well as global markets
On the other hand, Indian economy which is still largely deprived from domestic infrastructure spending would specifically benefit on account of large government spending on infrastructures & industries along with cut in tax rates. which may disburse more liquidity in the hands of people and thus enabling higher spending & consumption phenomenon.
Contd
The states should also take the role of investors by creating various compromises and cooperation mechanisms between public and private parties to ensure full employment If the state does not take action to stabilize the total expenditure that it is needed to stabilize the economy then the market economy becomes unstable as investments are affected by the uncertain expectations about future developments. In good times, the states should maintain budget surpluses but during financial turmoil should intervene to market economy by creating deficits in order to give the necessary impetus for growth.
EFFECTS ON INDIA
Indias exports to Europe could witness a slump close to 10%. Export driven sectors such as textiles and software's are likely to bear the brunt. About 22-28% revenues of India's top tech major come from Europe whose revenues will definitely affect. Govt overall target of $200 billion for the fiscal could be at stake
Conclusion
The US crisis led to global financial crisis, which further spread to Eurozone and caused Eurozone crisis, as these countries were most affected. Hence probably Keynesian theory could help the countries to come out of crisis and it mentions the role of government. In the long run we are all dead