According to the Washington Consensus, what is the relationship between government deficits and economic growth?
Understand the Problem
The question is asking about the Washington Consensus and its perspective on how government deficits affect economic growth. We need to analyze the relationship proposed by the consensus in the options provided.
Answer
Reducing government deficits is crucial for economic stability and growth.
According to the Washington Consensus, reducing government deficits is seen as crucial for achieving economic stability and growth. Large budget deficits were associated with high inflation and economic instability.
Answer for screen readers
According to the Washington Consensus, reducing government deficits is seen as crucial for achieving economic stability and growth. Large budget deficits were associated with high inflation and economic instability.
More Information
The Washington Consensus featured a set of economic policy recommendations for developing countries that were advocated by Washington D.C.-based institutions such as the IMF and World Bank. Controlling inflation and reducing government deficits were integral components meant to foster economic stability.
Tips
A common mistake is assuming the Washington Consensus suggests a direct, immediate link between reduced deficits and rapid economic growth. The focus is on stability as a precondition for growth, which can be a more gradual outcome.
Sources
- What is the “Washington Consensus?” | PIIE - piie.com
- Washington Consensus - Wikipedia - en.wikipedia.org
- Washington Consensus | History, Facts, & Impact | Britannica Money - britannica.com
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