Question

Latvia has become the second European Union country to seek the International Monetary Fund’s (IMF) help to stabilize its financial system. It is also asking for help from the European Union. The Latvian Prime Minister said the sum needed would be decided by talks with the IMF and EU. Latvia has fallen into recession and recently nationalized the country’s second largest bank. The government invested $ 353 m into the parex bank to help it survive after a run on its deposits. It also offered $ 877 m in guarantees to its creditors. Latvia’s economy, which grew by 50% between 2004 & 2007, Shrank 4.2% in the third quarter of this year, the sharpest economic contraction in the European Union. The Latvian Government has already started talks with the European Commission, the executive branch of the EU, on a possible rescue package for its economy. The IMF has said it has $ 200 bn set aside to help out countries facing turmoil because of the current global financial crisis. It has also said it expects to provide help for some 24 countries.
Question :
1) What measures can the European Union take in order to undo the economic contraction?
2) 2) What is the role of IMF towards the countries that have fallen into recession?
3) 3) In what ways can Latvia use the financial aid from IMF to stabilize its financial system?
4) 4) Explain the term Economic Recession in detail.​

Answer 1

Answer:

1. Measures for preventing future crises in EU according to the authors are improved debt management, application of Keynesian ideas for overcom- ing the crisis, reform of the criteria for entering the Eurozone, creation of a fiscal union, exit of the PIIGS countries from the Eurozone, taxation of the financial sector
2. The IMF helps member countries facing economic crisis by offering loans, technical assistance, and surveillance of economic policies. Money to fund the IMF's activities comes from member countries that pay a quota based on the size of each country's economy and its importance in world trade and finance.
3. Sorry Don't Know.
4. Economic recession is a period of general economic decline and is typically accompanied by a drop in the stock market, an increase in unemployment, and a decline in the housing market. Generally, a recession is less severe than a depression

Answer 2

Answer:

The answers for the following questions based on IMF and Latvia is answered below:

Explanation:

1. Measures that can be taken by European Union to undo the economic contraction:

• Steps that can be adopted to assist the financial system in a concerted effort include raising the maximum deposit insurance limits, providing guarantees for bank debt, and recapitalizing banks.
• Recovery of the total government investment made in the banks, recapitalization of the financial sector to enable it to endure the downturn, and resume lending.
• Investing in scientific research, as well as the largest-ever investment in clean energy, to create the physical and technological infrastructure necessary to support the economy of the future.

2. Roles of IMF towards the countries that have fallen into recession

• By providing loans, technical aid, and oversight of economic policy, the IMF supports its member nations that are going through economic hardship.
• The member nations of the IMF contribute money to support their operations through quota payments based on the size of their economies and their prominence in international commerce and finance.

3. Ways that Latvia can use the financial aid from IMF to stabilize its financial system:

• Thus, economic support may be given in exchange for the right to build or utilize military bases abroad or to keep friendly governments from being influenced by enemy ones. IMF financial aid may also be utilized by a nation to further its diplomatic objectives and get respect from other nations.
• Foreign help includes expanding its exports (for example, through initiatives that mandate the receiving nation use the aid to buy the donor nation's manufactured goods or agricultural products).
• Additionally, nations give aid to alleviate suffering, advance economic growth, build or reinforce political institutions.

4. Economic Recession

• Real GDP, real income, employment, industrial production, and wholesale-retail sales are typical indicators of a recession, which is defined as a major fall in economic activity that affects the entire economy.
• When a series of events that gathers speed and continues until the economy contracts, it is said to be in a recession.

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