Question

In some countries, in order to recover from the recession, they adopted a policy called austerity . and austerity measures, What is that about and how does impact the economy?  

Answer 1

Several countries have recently implemented 'austerity packages' - attempts to reduce government spending and increase taxes, in an effort to reduce their budget deficit. It was hoped these austerity packages would 'restore confidence', improve countries fiscal position and enable long-term recovery.
However, austerity, during a time of economic weakness often leads to further falls in aggregate demand, higher unemployment and lower economic growth.

In some cases, austerity to reduce a budget deficit can be self-defeating, with sharp falls in real GDP, causing debt to GDP ratios to continue to rise.

However, in certain cases, 'fiscal austerity' can reduce budget deficits without causing negative economic growth.

IMPACT-

Lower demand. A cut in government spending and higher taxes will lead to lower aggregate demand and lower economic growth. If there is a fall in output, firms will employ less workers leading to higher unemployment.

Lower inflation. Spending cuts will tend to lead to lower inflation.

Budget deficit. Higher taxes and lower spending will lead to an improvement in the government's budget deficit.