Macroeconomics - Assignment Example

Conversely, a major concern with the growth is whether it is sustainable which brings into focus two important factors. This includes the emerging countries ability to maintain a stable growth, and whether the global economy can sustain the growth evident in emerging countries. It is important to note that while emerging countries can maintain their stable growth, this growth cannot be accommodated by the global economy. As a result of emerging countries still undertaking the process of catching up in terms of growth, these countries still need to engage in a continuous and a challenging structural change.

Other changes that emerging countries still need to tackle emerge in the areas of reforms and also institution building (Lachman 65). While emerging countries are better placed to a progressive growth in a global economy impacted negatively by crises in developed countries, the decoupling seems to be incomplete. In essence, a reasonable growth of the world economy still needs the developed countries. This is important in terms of accommodating the increased growth and the prominence of the emerging countries. . The lack of such a change may result in a trend of a recurrent global economic turmoil without any firmness in stabilizing the world’s economy.

The consequence of the crisis would involve emerging countries leading the way by playing a role in a global economy struggling with protracted rehabilitation related to the over-stretched balance sheets in developed countries (Lachman 66). In addition, the increased growth and development in emerging countries means that these countries in the long run may create a strain on the world’s financial system. As time progresses, it is likely that the global supply of capital will not meet its demand in regard to capital, and the intended level related to the investment needs to finance various projects.

In the world economy, today, the rates related to household savings have dwindled in developed countries, and the aging population may not reverse such a trend. Conversely, the effort by emerging countries such as China in rebalancing its economy to improve consumption appears to impact negatively on the global saving (Atale 18). Is austerity an appropriate answer to deal with excessive public debt? Austerity is not an appropriate answer to deal with excessive public debt since it results in numerous consequences for the economy.

Austerity, in other quarters is viewed as expansionary by focusing on cutting spending and not increasing tax. Budgets cuts which are aimed in reducing interest rates and stimulating private borrowing and other investments is seen to change expectations regarding future tax burdens, but this is doubtful. In essence, austerity instead of bringing expansion,