Question

In 2016, Greece faced another set of hurdles in its ongoing saga of managing its debt. In order for Greece to maintain its obligations under the IMF and European Central Bank bailout packages, it must continue to cut government spending, particularly pensions that have put a strain on the budget. Greece's leaders, meanwhile, have argued that the required spending cuts will push the economy back into a recession. What will the required budget cuts do to an economy that is still experiencing slow growth

Answer 1

AS decreases with negative impacts on aggregate output and prices.

Step-by-step explanation:

Greece is cutting government spending, particularly pensions that have put a strain on the budget. This action will reduce the amount of money the citizens have and reduces the amount in the economy that can be used to increase production.

There are over 2.7 million pensioners in Greece, so a lot of households depend on them to make ends meet.

A reduction in pension will reduce disposable income that could have been put into local production. Aggregate supply will decrease, and the effect on output and prices will be a negative one.