Question

Describe three alternative responses available to policymakers when the economy is in recession.

Answer 1

Policy responses to a recession include expansionary fiscal policy, expansionary monetary policy, and regulatory adjustments. These aim to increase output and reduce unemployment, stimulating economic recovery.

Step-by-step explanation:

When the economy is in a recession, policymakers have several alternative measures to mitigate the situation. Here are three responses:

1. Expansionary fiscal policy: This involves increasing government spending or reducing taxes to stimulate the economy. By putting more money into consumers' hands or investing in public projects, demand can be increased, leading to higher production and employment.
2. Expansionary monetary policy: This strategy aims to lower interest rates and increase the money supply. Cheaper borrowing costs encourage businesses to invest and hire more workers, while consumers may be more inclined to spend rather than save.
3. Regulatory adjustments: Governments can also opt to modify regulations to encourage business investment and activity. This could include reducing red tape, making it easier to start or expand a business, or altering laws that might be constraining economic growth.

These responses can help to stimulate output and decrease unemployment, fostering a recovery from the recession.