Economic policy tools used combat recession

Governments have two general tools available to stabilize economic fluctuations: fiscal policy and monetary policy. Fiscal policy can do this by increasing or decreasing aggregate demand, which is the demand for all goods and services in an economy. To help accomplish this during recessions, the Fed employs various monetary policy tools in order to suppress unemployment rates and re-inflate prices.

These tools include open market asset purchases, reserve regulation, discount lending, and forward guidance to manage market expectations. Expansionary fiscal policy is most appropriate when an economy is in recession and producing below its potential GDP.

Contractionary fiscal policy decreases the level of aggregate demand, either through cuts in government spending or increases in taxes. If recession threatens, the central bank uses an expansionary monetary policy to increase the supply of money, increase the quantity of loans, reduce interest rates, and shift aggregate demand to the right. Business cycles of recession and recovery are the consequence of shifts in aggregate supply and aggregate demand.

Still, cash remains one of your best investments in a recession. If you need to tap your savings for living expenses, a cash account is your best bet. In a recession, the rate of inflation tends to fall.

This is because unemployment rises moderating wage inflation. Account Shopping cart Logout. Explore Economics Economics Search. Explore Blog Reference library Collections Shop. Share: Facebook Twitter Email Print page. Current situation Base interest rates are 0.

Evaluation Points The UK is an open economy susceptible to the impact of issues such as trade protectionism, Chinese slowdown, EU downturn Policy interest rates are at historic lows — therefore less scope to cut them in the event of a recession Bond yields are low — perhaps giving scope for a rise in state investment and borrowing In the long run, supply-side improvements can make an economy more resilient to external economic shocks.

Our subjects Our Subjects. This study discusses the measures taken by the government, to curb recession. The main problem that arises for government is that recession itself drives the policies of a government. Recession and Its Indicators Recession may occur in a nation's economy, in a part of the world or the whole world.

Some periods of recession are very famous, for example, the era of s known as The Great Depression and the era of The Great Recession. The economic indicators such has per capita income, GDP, inflation, investment, capital utilization and profits fall during the recession. Unemployment and bankruptcy increase in time of recession.

Recessions generally occur in an economy when there is a decline in spending adverse demand shock , financial crisis, adverse supply shock, trade shock or bursting of an economic bubble. Measures against Recession Combating recession first require the knowledge of causes of recession.

There are different shapes and causes of recession. Decline in personal consumption, inflation, mortgage crises, trade deficit, high energy prices, high energy prices and high interest rates may be the causes of recession.