Turkey is a middle-income country with high inflation and unemployment rate compared to the developed countries, which is located in both Europe and Asia. Suffering hard from the downturn during the late economic crisis, leading economic indicators now show Turkey to be on the rebound. For example Turkeys GDP growth compared on a year-on-year basis is showing double digit growth for the last two quarters. However Turkey is still facing many pitfalls to avoid further decline in the economy, like increasing inflation, government budget deficit and increasing unemployment.
During the period of analysis (2000-2010) Turkey has experienced an average Real GDP growth of 4.1% on a year-on-year basis measured quarterly. In 2009 Turkey experienced an even worse GDP growth rate than during the crisis in 2002, reaching a record low of -14.57%. Real GDP growth started to rise in the 4th quarter of 2009 and kept rising into 2010. Turkey responded to the decline in the economy with increased government spending. Turkey increased its budget deficit from a mere 5,7 Billion TL in 2006 to 52 Billion, leading on to a decline in the unemployment rate but an increase in inflation.
Increasing budget deficit following Keynesian principles:
Turkey had already experienced a financial crisis in 2001 and had learned several lessons about their economy’s stability. During the 2001 crisis they increased government spending and were able to stabilize their economy rapidly. In this financial crisis the Turkish government took advantage of low interest rates on government borrowing to increase the budget deficit and increase expenditures to 28% of GDP, which in turn lead to an increase in GDP and declining unemployment rate.
• Increase of budget expenditure with more than 4% of GDP. Nominal budget deficit of more than 52 Billion TL. • Budget deficit used as a measure to get the economy growing again, and also prevent a similar scenario like they experienced during the 2001...
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