Policy of revival
A political of revival is a Economic policy the purpose of which is to cause a revival saving of a country or a monetary Area; the objective of this type of policy is to support the Economic growth and to fight against a Chômage raised by an increase in the public expenditure. It can take the form of a Budget policy or a Monetary policy.
The policies of revival are the application of the theory keynésienne according to which a company, in the short run, recruiting according to its needs and thus according to the economic activity and not according to the fluctuations in price of work (i.e. wages), which is adjusted only in the short or the long term because of nominal rigidities.
The policies of revival generally dig the Public deficits for an often disappointing result. They are often followed of austerity measure which bring back the deficit to reasonable levels, and/or make it possible to decrease the Inflation.
Principle
The policies of revival are founded on the mechanism of the multiplying keynésien. If the total request increases in an economy, the companies will have to increase their production to face this surplus of request. This increase in production gives place to an economic growth and an application for a job on behalf of the companies, therefore with recruitings. The increase in the provided activity also increases revenues from taxes, making it possible to compensate for very partially the rise in the national expenditure (for a budget policy), and currency requires it, which partially corrects the inflationary effect of a monetary policy.
For the economists keynésiens, the State has a big role to play in the regulation of the business cycles. The liberal economists and the neo-classic economists are critical with respect to the policies of revival, which they consider harmful for the economy on the long run, and which increase the debt of the State.
In a open economy (significant proportion of goods imported in consumption), the revival keynésienne by the request loses of its effectiveness, the rise of the request was provided by more by the rise with the imports that by the rise with the interior production, which has less elasticity to answer the inner demand that the production of the Rest of the world (since the production is more important there, a rise of production will be easier).
The economic Universalization, and in particular the rise on behalf of the imports in GDP, especially reduce the effectiveness of the policies of revival when those aim at increasing consumption (revival by the request). The national production increases little, but it is burdened by a strong imposition.
Means
The tools of a policy of revival are of three orders: budgetary, monetary or lawful.
These tools are those recommended to support the revival, within the framework of the Business cycle, independently of the structural aspects related to the Economic development in the long run.
Budgetary tools
See also: Budget policy
In the case of a budgetary revival, it acts to increase the internal demand for increasing the national expenditure (constructions, investments, rise of the wages of the civils servant,…) or by increasing the incomes available of the agents (lowers taxes or raises social security benefits).
Lawful tool
In this case, the State uses its lawful capacity to increase the incomes of a targeted group of the population. They are in general the low wages, the fundamental psychological law of Keynes ensuring that an increase in the incomes of this group will result almost completely in an equivalent rise of the request (this type of households having a propensity to save weaker than the other groups, and thus a propensity to consume stronger).
In practice, these increases often take the form of increase different Social minimums or Minimum wage. The effects can then be negative on unemployment rate (see Trappe with inactivity and Salaire minimum#Analyze).
Monetary tool
See also: Monetary policy
In the case of a Monetary policy of revival, the Central bank increases the offer of currency (for example by a fall of sound directing Taux). Such a fall encourages the application for credit by the households and the companies, and thus increases the overall economic activity.
By decreasing the yield of the currency, an expansive monetary policy will cause a drop in the course of the currency vis-a-vis the foreign currencies, which will increase the pay of the commercial Balance in the medium term (rise of exports and lowers imports). The effect is negative short-term, and neutral on the long run: to see Curve in J .
This policy will however support a rise in inflation and a rise in the cost of the imported goods, the oil products for example.
Conditions
The policies of revivals are political of the economic situation, answering a specific weakness of the growth in the presence of unutilised production capacities. They are impotent vis-a-vis a weakness of the growths related to the organization even of the productive system, which asks for policies of Structural adjustment. It is necessary also that the supplement of income is translated in an increase in internal demand, which supposes the belief by the households that their taxes will not increase to face the national expenditure.
Unutilised production capacities
Conceived vis-a-vis the Great Depression, the analysis keynésienne of the budgetary revival is based on the situation of the time, where a great number of companies turned under-mode. It supposes thus that the companies can very quickly increase their production to face a surplus of request.
If it is not the case, the balancing of the market forwards by pure a rise of the prices. This last phenomenon explains the failure of the policies of revival of the end of the Années 1970 and the Années 1980, the shock of offer related to the Oil crisis having led the companies to limit the increase in their production capacities, and thus their capacities available. The policies of revival then resulted in a raising of prices (Inflation) and a rise of the national Debt, without increase in the growth (phenomenon of Stagflation).
Confidence of the companies and the households
The increase in the incomes or the offer of currency can be translated of surplus of request only if the economic agents show a certain confidence in the future. Without that, the surplus of income is saved by the households (to face a future rise of the obligatory ones|taxes]), and the decisions of Investissement of the companies are delayed.
An extreme case of lack of confidence is that of the Trappe to liquidity, where the anticipation of a low growth in a context of Déflation encourages the agents to keep their credits in Monnaie, which reduces to nothing any effect of a budget policy or monetary.
Structure of the request
An increase in demand increases the domestic activity only if the surplus of request goes on domestic products. In an opened economy, the effect of the multiplier will be thus all the more weak as the rate of opening of the economy is large.
In France
In France, the policies of revivals installation starting from the Années 1980 did not succeed in making return the country on a high level of growth nor to reduce the Chômage durably. The national Debt of France simultaneously passed from 20% of the GDP to more than 60%.
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