Question

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

Answer 1

During a recession, policymakers have three alternative responses: expansionary fiscal policy, expansionary monetary policy, and structural reforms.

Step-by-step explanation:

During a recession, policymakers have several alternative responses to stimulate the economy:

1. Expansionary fiscal policy: This involves lower taxes or increased government spending to boost demand and stimulate economic growth. For example, the government may implement tax cuts to increase disposable income and encourage consumer spending.
2. Expansionary monetary policy: In this approach, the central bank increases the money supply and lowers interest rates to stimulate borrowing and investment. Lower interest rates incentivize businesses and individuals to borrow and spend, increasing economic activity.
3. Structural reforms: Policymakers may also focus on long-term structural reforms to improve the economy's efficiency and competitiveness. This may involve measures such as deregulation, reducing barriers to trade, and investing in education and infrastructure.