Question

Supposing the Australian economy is heading for a recession, what should (or can) the current government now do to deal with this? Use the economics knowledge that you have acquired in this course so far to elaborate your discussion. You need to write at least half a page in length (please do not use bullet points). Note that presenting a list of reference is preferred. But not required.

Answer 1

When an economy is heading for a recession it is expected that prices will fall , aggregate demand will fall , unemployment will rise and growth will slow down . So to provide an impetus to the economy or to boost up the economic growth , the government must follow an expansionary fiscal policy . In expansionary fiscal policy , government spending rises and tax rates are lowered . Since there is tax cuts people have more money to spend , hence aggregate demand rises in the economy . Also increase in government spending or deficit budget policy will lead to more money supply in the economy . so price level will rise . Hence the economy will recover from the recessionary trend .