Question

Describe nuanced and thoroughly what action a government can take in order to make economic development in a liberal country from a recession.

Answer 1

The govt can use monetary and fiscal policy. Besides it can use measures like bailouts of sick financial institutions. In case of monetary policy govt will increase money supply through purchasing govt securities, reducing bank rate etc. This will reduce cost of credit and hence there will be incentive for investors to invest more because investment is now cheaper. Even consumption will increase though cheap consumer credit etc. So far as fiscal policy is concerned govt will invest in dams, roads, bridges etc to increase aggregate demand and to create employment. This will led to increase in income multiple times through multiplier effect