Increasing government spending in order to increase aggregate demand
To Address the downturn, the government can employ an expansionary fiscal policy either by increasing spending or reducing taxes. The result would be an expansion of aggregate demand, moving the economy back toward the long-run equilibrium output.
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The economic problem faced by the countries in Southern Europe, specifically Portugal, Spain, Italy and Greece is due mainly to illiteracy and the low standard of their educational system. Ranking of mastery in mathematics among eighth graders showed that the Southern Europeans come close to the bottom. The lack of education leads to high unemployment and unsustainable standards of living. In Italy and Greece, the other causes are poor business environment and high level of corruption.
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