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Evaluation of a Country That Follows
Keynesian Economic Theory:
Sweden

In the real world, there is, strictly speaking, no country that follows either a pure Keynesian
model or a Classical model for their national economic policy
...
As
per such an assumption, Sweden emerged to me as the most plausible country that follows a
policy heavily influenced by the Keynesian economic school
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This is because Sweden
had maintained a strong macro-economic foundation which had helped their citizen's
standard of living to increase quite significantly, unlike other countries that seem to face
various structural problems in their economy due to inappropriate policies adopted, regardless
of whether or not they were Classical or Keynesian
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The yardstick to macro-economic stability can be broadly measured from several indicators,
namely unemployment, inflation, national debt, balance of payment situation, and overall
productivity and competitiveness of the economy
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9%
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4% and in 2010 and it
was 8
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It is forecasted that unemployment will fall back to 7
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0% in 2013
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Historically, Sweden used its fiscal policy to stimulate their demand
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Large money was spent upon
training and retraining schemes, which tend to keep their unemployment below the average
unemployment rate of OECD
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However, it too did recognize that low unemployment causes a crowding
out effect on its other macroeconomic objectives as predicted by the Keynesian theory
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They were all brought under control
by allowing mild deflationary policies that tended to create an increase in unemployment
temporarily
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It
has faced an inflation of 1
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The projected inflation
for Sweden in 2012 is a deflation of 0
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e
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9%
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9% of GDP to 51
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They have further increased their net
domestic savings from 25
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6% of their GDP to further ease their inflationary
pressure
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1% of GDP in 2010 to 0
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All of this indicates a strong influence of Keynesian principles in the application of such
demand side management policies as Keynes had principally argued in favor of manipulating
the economy's aggregate demand to sustain the economy's health
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Although it can be reasonably be
dismissed the 1970s inflation being solely due to external supply side shocks chiefly due to
an increase in oil prices by 10 fold, however, inflation of Sweden persistently remained well

above 3% and mostly above 4 % during the 1980s
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After this bout of inflation, the government strongly cut down its
expenditure in the year of 1992, which quickly put inflation back under 2% per year ever
since with occasional slight increase above that
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In 1932, they had the sharpest
negative output gap of -
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Even then, it’s extremely small considering that
other members of OECD had considerable recessionary gap of over 5% of GDP (UK during
Lawrence boom of 1987-1990)
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However, most of their real GDP was in the positive side of the trend GDP,
although never higher than 0
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This is evidence showing that time lag
factors behind every decision whenever the fiscal levers are applied
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It has traditionally used heavy taxes to control in
certain aspects to reduce disposable income if inflation was running out of control
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Standard & Poor's credit rating agency has termed Sweden as an AAA/Stable/A-1 country in
terms of its sovereign debt security
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Its sovereign debt had been reduced from 49
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2% of GDP in 2011 and it is predicted to come down to 43
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This is
significantly well below the Euro zone’s recommended limit of 60% of GDP
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3% and they suffered a mild recession of -0
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The year 2009 had been particularly bad for Sweden as they suffered
from a -5
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However, they have
rebounded strongly in the year of 2010 by seeing a growth in real GDP by 5
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8% increase in 2011
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Sweden had moved from the traditional orthodoxy of Keynesian policies in the 2007
financial crisis management
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They
have finally decided to improvise their supply side policies to ensure that their long run
macroeconomic indicators are mostly stable
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They have so far successfully used their
fiscal levers to curtail the extremities of their aggregate demand
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We see that real investment has dropped from an increase in 9
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9% of real GDP in 2009
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2% in 2012
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Since Sweden had maintained a very close synchronized trade cycle as per the trend GDP, it
is well recommended that they can still use their fiscal levers to manipulate the aggregate
demand for future
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This increased
demand would lead to a greater production in the economy, which would overall tend to pull
the employment at near zero, or at Non Accelerating Inflationary Rate of Unemployment
(NAIRU) level
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However, care must be take to not to increase the tax rates so high that it may act
as a disincentive to work and thus may create a poverty trap for the labor force
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Compared to other Scandinavian countries, Sweden has maintained a
strong private sector that can still thrive in the grossly regulated economy
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For instance, it heavily subsidizes health, education and research and development
to ensure that productivity o the microeconomic sector of the economy remain viable overall
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References:
http://www
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org/economics/government-debt_gov-debt-table-en
http://epubl
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se/1404-5508/2003/130/LTU-SHU-EX-03130-SE
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riksgalden
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p
df
http://www
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org/economics/country-statistical-profile-sweden_20752288-tableswe
http://www
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org/dataoecd/0/46/46901967
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minneapolisfed
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pdf
http://www
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se/upload/Dokument_riksbank/Kat_publicerat/Ekonomiska%20kommen
tarer/2009/ek_kom_no5_eng
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inflation
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aspx
http://en
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org/wiki/Economy_of_Sweden
http://www
...
com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&sqi=2&ved=0CC
QQFjAA&url=http%3A%2F%2Fwww
...
unu
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pdf&ei=n0F_T73mPPCaiAezx
oi_BA&usg=AFQjCNHEXvnBL_xdD1yXNdQGMAJhz6__bw&sig2=M14_CCEvtqpOU_m_LdCOw



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