Date of Award

6-2014

Document Type

Union College Only

Degree Name

Bachelor of Arts

Department

Economics

First Advisor

Lewis Davis

Language

English

Keywords

trust, rconomics, transactions, downturn, unemployment

Abstract

Trust is an essential component of economic functioning because it ensures reliable transactions will occur, therefore increasing growth and productivity. Reductions in trust become an additional cost of economic crises with the potential to affect future economic outcomes. Levels of trust were significantly influenced by the onset of the Eurozone crisis, which plagued many European countries because of excessive spending and inflated public sectors. With rising debts and high unemployment facing peripheral countries, many have lost faith in the capability of European institutions to effectively manage a common currency without fiscal or political unity. While there have been studies done on the relationship between economic crises and trust levels, many have ignored the monetary and fiscal policy tradeoffs that exist in times of economic downturn. This paper uses unemployment rates, deficit to GDP levels, and inflation rates as measures of crisis to understand the fiscal and monetary policy decisions politicians are required to make. Ultimately, the results indicate that while unemployment and inflation rates negatively influence social and political trust levels, deficit levels are viewed positively among Europeans. This has implications for a monetary policy debate, but suggests that fiscal policy be Keynesian focused if countries are aiming to increase trust.

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