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Mathematics & Economics
Case Study
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How Government Deficits Affect Long-Run Economic Growth (Case Study Sample)


Task brief
You should complete a report, which analyses and evaluates different features of markets and cost structures addressing the following questions/topics:
1. Explain how government deficits affect long run economic growth. Explain how this effect is transmitted. You should complement your explanations with some graphs.
2. What is economic growth? Is it the same as increasing wellbeing and living standards of population? Explain the links between economic growth and each of these concepts: consumption, investment, and public policies (20%).
3. In the Eurozone, which institution oversees monetary policy, and which one controls fiscal policy? The main goal of the European Central Bank is controlling the inflation. Why it is so important? Define aggregate demand and aggregate supply in the long-run and short-run (use graphs) and explain the main effects of rising prices in the economy (20%).
4. Provide two examples of fiscal policies in face of an economic crisis and discuss their positive and negative effects on aggregate demand. Use the concepts of “multiplier effect” and “crowding-out effect” (20%).
5. Explain what the expected impact of the fall in international trade on the Eurozone economy might be. Use the AD/AS model and the concepts delivered in unit 8. This section must include a written explanation and charts (20%).
• Write a report in word
• Formalities:
• Wordcount: 1700
• Cover, Table of Contents, References and Appendix are excluded of the total wordcount.
• Font: Arial 12,5 pts.
• Text alignment: Justified.
• The in-text References and the Bibliography must be in Harvard’s citation style.
It assesses the following learning outcomes:
• Outcome 1: understand the forces determining macroeconomic variables such as national output, inflation, unemployment, and interest rates;
• Outcome 2: apply macroeconomic terminology and assess macroeconomic policy suggestions;
• Outcome 3: evaluate real life situations with a practical application of the acquired tools and knowledge.


1 How Government Deficits Affect Long-Run Economic Growth
Government deficits arise when a regime’s expenditure surpasses its returns within a financial year. It is also known as a “budget deficit” and a common occurrence in multiple countries all over the world. Albeit the phrase mainly relates to administrations of different types, nevertheless, persons, businesses, as well as other establishments do experience shortages. Failing to offset or pay a deficit culminates in an increase in national debt, which continues to grow annually. If the government lacks the money to pay the debt, it funds it through additional debt, borrowed locally or otherwise. Administrations borrow cash through allotting bonds to individual investors. The government turns to the private sector to borrow loans as well to offset piling foreign debt, mainly. Increasing debt levels render it even more difficult for a government to raise funds due to financially strenuous interest rates and expenses of such loans.

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