Question

What to do during recession?

Answer 1

A recession is identified as a contractionary phase in business cycle of any country or economy which can be controlled or reduced through various monetary and fiscal measures by the government.

Explanation:

• Recession is described as a contractionary phase of business cycle characterized by an overall downfall of the economic activity or mobility in any particular country or economy.
• During recession adverse impacts of various factors or components affecting aggregate demand and/or aggregate supply causes hindrance in the growth of national income or GDP level of any country.Some of these factors generally include stagnancy or reduction in aggregate consumption expenditure,overall business or capital investment,a significant rise in the prices of raw materials and productive resources,any massive economic or financial crisis,natural calamity,biological calamity such as spread of corona virus,various adverse monetary and fiscal policies undertaken by the government and so on.
• The government can implement an expansionary fiscal policy to control the effect of recession.In this context,the government can increase funding or expenditure on various public infrastructural activities or projects such as public education,health/medical sector,transportation services,road and highway construction,rural betterment and development etc.These measures can boost the public infrastructure in the country and generate more employment or job opportunities in the country.
• An expansionary fiscal policy can increase aggregate demand in the country or economy which can eventually stimulate the economy by expanding the national income,employment level and GDP level.
• Alternatively,the government can undertake an expansionary monetary policy to re-mobilize the economy by increasing money supply and/or reducing the interest rate.An expansionary monetary policy can motivate the business or capital investors to take more loans which can stimulate the overall business and commercial activity in the country.It can also encourage higher consumer spending as lower interest rate will also motivate consumers to take more loans for various commercial purposes.
• Therefore,an expansionary fiscal and monetary policy can stimulate and stabilize the economy during recessionary phase by mobilizing various components of aggregate demand and supply leading to an eventual increase in national income,employment and GDP level of any country.