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InterviewSolution
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Dr Raghuram Rajan, the Governorof RBI in a speech in july 2015 warned that the world was slipping into recession. The events in Greece justified what he said. The ratio of governmentdebt-to-GDP was very high in case of Greece. (a) What in your opinion led to such an event as in Greece ? (b) Explain the chain effect. (c) What is the remedy for the above situation ? What economic value is highlighted here. |
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Answer» Solution :(a) High fiscal DEFICIT was the root cause of the fallout in Greece - but could be true for other countries as well. (b) The CHAIN effects are as follows `{:("""More borrowings"),(""downarrow),("""Higher interest rates and more interest"),(""downarrow),("Lesser amount with the government to be spent on development PROJECTS"),(""downarrow),("""Low INCOME"),(""downarrow),("""Further borrowings/eventual debt-trap"):}` (c) The remedy is to contain/limit the fiscal deficit to a manageable limit (say `3%` to `5%` G.D.P.) The economic value HIGHLIGHTED here is fiscal discipline |
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