Unemployment, Fiscal Policy and Trade Deficit

Abstract

This article by Dr. M. Azizur Rahman explores the complex trade-offs between fiscal policy, unemployment, and trade deficits within the Bangladeshi economic context. The author posits that while expansionary fiscal policy characterized by increased public investment and budget deficits is effective in reducing unemployment and stimulating national income, it often results in rising commodity prices and a weakened competitive position in international markets, thereby widening the trade deficit. Conversely, the author warns against contractionary policies aimed at reducing budget deficits, arguing they would trigger severe unemployment and industrial stagnation. To navigate these "two-faced difficulties," Rahman advocates for a prioritized expansionary approach to safeguard employment and growth, supplemented by controlled wage and price policies to mitigate inflation. He concludes that a temporary acceptance of a trade deficit is a necessary trade-off for long-term economic development and internal stability.