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Discuss What Government Policies Can Be Essay

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Discuss what government policies can be used to overcome a recession

A recession is two or more consecutive quarters of a year that experiences a decline in GDP or has negative GDP growth; recessions are believed to be caused by a widespread fall in spending. Employment, investment, household incomes and business profits all fall during recessions; while bankruptcies and the unemployment rate rise. Governmennts respond to recessions by adopting expansionary economic policeys such as the expansionary fiscal policey or loose monetary policey.

The exapansionary fiscal policey involves the government attempting to increase aggregate demand, the two main instruments the government use to achieve this is government spending and taxation. The government increases its spending in the economey which stimulates the economey through the multiplyer effect, this huge increase of government spending acts as an injection into the circular flow and will eventually increase consumer incomes whi...

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