Macroeconomic Environment of Business Case Study - 2

Macroeconomic Environment of Business - Case Study Example It has led to domestic imbalances in the middle-income countries and the open economies ending up into large current account deficits and housing bubbles. Unemployment rates in the OECD countries rose rapidly from 5.7% in 2007 to 8.6% in 2009. This was a rise of 10.1 million individuals without employment in the OECD countries. Unemployment in the US was most massive with similar labour market consequences in Spain, Denmark, Turkey and Slovakia. Some of the worst-hit nations were Estonia, Lithuania, Ireland, and Latvia which witnessed dramatic output and labour market contraction (Verick & Islam, 2010, p.20-24). The most common methods of fiscal policies which could be used responding from the global crisis were a combination of government spending along with tax cuts in order to provide a boost to the slogging economies. According to the Keynesian theory, deficit spending could be used by the governments to replace an extent of the demand which was lost due to the recession and prevent further wastage of economies resources due to lack of demand. Governments could have responded by increasing bailouts and injecting money into the financial system in order to allow credit flowing in the economy; cutting down rates of interests in order to encourage investments and borrowing; and finally to allow excess fiscal sending to increase aggregate demand (Verick & Islam, 2010, p.36). This response could be effective in controlling further impacts of the crisis and further economic deterioration and keep workmen in their jobs and help in the creation of new job opportunities for those unemployed. Alth ough this response was likely to control further downturn the effectiveness could vary across economies (The Economic Times, 2008). One of the limitations in using fiscal measures during the recessions is the fact that ideally government finances must increase during periods of growth and reduce when the economy contracts or slows down.