Government Reactions during the Great Recession

862 Words Feb 26th, 2018 3 Pages
Keynesian economics says, “A depressed economy is the result of inadequate spending. Keynesian argued that government intervention can help a depressed economy through monetary policy and fiscal policy. The idea established by Keynes was that managing the economy is a government responsibility.
Monetary policy uses changes in the quantity of money to alter interest rates and in turn affect the level of overall spending. The object of monetary policy is to influence the nation’s economic performance, as measured by inflation, the employment rate and the gross domestic product, an aggregate measure of economic output. Monetary policy is controlled by the Central Bank and influences money supply.
Fiscal policy uses changes in taxes and government spending to affect overall spending and stabilize the economy. The objective of fiscal policy is the governments’ typical use fiscal policy to promote strong and sustainable growth and reduce poverty. During periods of recession congress has the option to decrease taxes to give households more disposable income so they can buy more products. Therefore, lowering tax rates increases GDP.
The steady growth of core inflation in late 2007 and the first half of 2008 appear to suggest that the Fed’s applied discretionary powers to avoid a tightening. In 2009 the feds needed to be…