Monetary and Fiscal Policies on Recession Research Paper

Monetary and Fiscal Policies on Recession - Research Paper ExampleAs a result, the rate of unemployment goes up reducing the purchase power of consumers. Consecutively, money supply in the economy becomes significantly low (Navarro, 2009). Fiscal policy is utilise by judicatures to stabilize aggregate demand and aggregate supply in the economy by influencing the government outgo, borrowing and taxation. The government uses monetary policy to change the patterns of peoples spending. According to Keynesian school, fiscal policy helps restore employment rates, demand and output where the economy is operating below capacity. Keynesian recommends two types of fiscal policies intricacyary fiscal policy and contractionary fiscal policy. Expansionary fiscal policy is used where the government requires deficit spending in case of recession while contractionary fiscal policy is used when there is an excess expansion which requires a surplus in the budget (Renee, 2009). Monetary policy i s another tool used to manage the aggregate demand and supply by controlling the supply of money in the economy. The government uses the primeval bank to control growth, liquidity, inflation and consumption due to changes in the amount of money in the economy. The federal official Reserve System responds to excessive money supply by raising the interestingness rate and lowers the interest rates when there is low money supply in the market (Borio & Disyatat, 2010). The Great Recession of 2008 presented arduous economic conditions in the US and also in other countries. Furthermore, the recession was associated with elongated economic slumps and muffled economic recoveries. After recession, most of the world economies went into depression and this caused a large gap in the recuperation of the currency, as the developing countries have weaker currencies compared to the developed countries.