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This caused G non-profitable expenditure (G1) to increase and thus caused deficit budgets. This is when Private Investment (I), Economic Growth (GDP) and Private Consumption started to fall tremendously.
In later years the G borrowed money from other nations because worsening Fiscal policy. The trouble was that the G was borrowing to pay G1 expenditure not G2. This caused a lack of I multiplier effect within the economy. The lack of money circulating in the economy lowered the Production Possibilities Curve (PPC) making the nation not able to provide enough goods and services for the people. If we look at the aggregate supply equation (O supply= GDP+ imports (M)), when GDP falls imports are the only option have enough supply to satisfy the economy...
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