With the US economy in such server recession, the government would need as much support as it can possibly get. This would involve both monetary and fiscal policies. First, the government should start with an expansionary monetary policy that lowers interest rates. This would encourage firms to increase investment. This should also help increase consumption as people are able to borrow with lower interest rates. Since monetary policy can only provide incentives to spend, which is not actually spending, the economy also needs direct stimulus from the government. Government should increase spending, which would help increase aggregate demand, which in turn, will help increase the nation’s real GDP. Fiscal policies are more important than monetary policies at times like this because history had shown that monetary policies are not as effective in stimulating growth as fiscal policies are. Raymond and Patricia, it is a good idea to lower interest rate.
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