Measures by Government to Combat Recession

Table of Contents

Introduction1

Recession and Its Indicators1

Measures against Recession1

Anticipated Policies2

Control Inflation2

Reducing Unemployment Rate:3

Tax Cuts and Savings3

Low Interest Rate:3

Encourage Foreign Direct Investment:4

Other Measures4

Conclusion & Recommendation4

References6

Measures by Government to Combat Recession

Introduction

Recession in every economy is a contraction of the business cycle in which economic activities slow down. Government's monetary and fiscal policies play an important role in combating the recession. 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 1930s known as The Great Depression and the era of 2009 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. Some people say it is U- Shaped-Shaped, L-Shaped or W-Shaped. 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.

As we all know that economics is a behavioral science, it depends on the behavior of economic agents. Recession may involve psychological aspects. If market players expect time of recession, they slow down their activities and firms cut off the employment. Government is the key player to control and fight back the recession. The key actions, which the government should take to fight against recession, are as follows.

Anticipated Policies

Recession can be controlled if a government's policies like monetary and fiscal policies are anticipated. As the government is the main player to control the recession in an economy, it should increase the per capita income, decrease per capita debt, boost Employment, balance interest rate and increase the money supply etc.

Control Inflation

Inflation is the increase in the general price level. Inflation erodes away the purchasing power of the households. The government should take measures to control the inflation as it is one of the causes of recession. Inflation can be controlled either by monetary measure or fiscal measures or both.

The monetary measure is taken by the Central bank of the country, which usually increases the interest rate to motivate savings. Other measures are increasing the bank rate, raising the cash reserve ratio and the open market operation, i.e., selling the government securities to the public (Carvalho, et.al, 2012).

The other ways to control inflation and fight back the recession; is to encourage the imports of the items which decrease purchasing power of individuals and as well as discourage export of these ...