Austerity fails to help boost the country’s economy. Keynesian economists argue that Eurozone’s harsh austerity measures are counterproductive since they lead to a cycle of recession, high unemployment, greater social instability, and accelerated income inequality.
Multiplier
Depends on Multiplier and change in injections may be increased by the multiplier effect, therefore the size of the multiplier will be significant. In eurozone where there is idle unemployed resources (Low AD), the size of multiplier is quite large. If the government keep the spending low (negative change in injection), the national income will decrease by a large amount, maintaining the vicious cycle of recession. Governments should instead maintain fiscal demand until the economy has recovered sufficiently that one is close to full employment and interest rates are no longer at or close to zero. At that point, a cut-back in government spending (or an increase in taxes) can be offset by the Central Bank through its management of interest rates, and GDP need not then fall.