4) What great debate is taking place in Europe and the United States regarding the impact of budget-cutting fiscal policy? What type of fiscal policies did the conservative government in Britain and the countries of the euro-zone pursue? How did it work? Explain. What was the fiscal policy adopted by the Obama Administration in the U.S.? How did the U.S. economy perform relative to Europe? What are the lessons from what happened in Europe and the U.S.? Explain.

The debate taking place in Europe and the United states regarding the impact of budget-cutting fiscal policy is whether the best way to recover the economy is through fiscal tightening of the government budget or if the aggressive budget-cutting tactics harm fragile economies. Britain and other countries in the European Union employed fiscal policies of austerity by increasing taxes and cutting budget. They have not had a good effect, with their economy recovering much slower than that of the U.S., which did not implement the same austerity measures. In the U.S., the Obama administration adopted a fiscal policy which was much more gradual and less aggressive than those applied in the European Union countries. The U.S. did much better than those countries in Europe, leading many economists to believe that the austerity measures implemented in the European Union are not an efficient or effective measure to combat the recession.  However, some people say that this is not proof that these measures don’t work, but that they were just implemented wrong such as tax increases instead of government budget cuts.