Broke all the financial rules begins to fall apart

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This is where the story that Country (A) broke all the financial rules begins to fall apart. In a lot of ways, the IMF's intervention was typical. Country (A) sharply reduced government spending and increased interest rates all the way up to 18 percent in the immediate aftermath of the crisis to rein in inflation. It gradually cut interest rates afterward, but it wasn't until 2011 that they reached a "low" of 3.85 percent. So Country (A) had a bigger financial crisis, did more austerity, and had higher interest rates than Country (B), but has still managed to recover more. How is that possible?

In the above paragraph it states that government spending was reduced and interest rate increased. Isn’t this a contradiction? What else happened that is missing in this paragraph? Why did this country have to go through this process? What is the impact on output, employment, price level and interest rates? Fully explain.

Reference no: EM13978532

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