Question

If you were in government during 2008, what specific Fiscal and Monetary Policy actions would you suggest and why? (4 sentences long)

Answer 1

Specific monetary and fiscal policy during the 2008 recession -

Recession is a phase with low wages and a fall in employment which results in low purchasing power hence affecting the aggregate demand.

Hence the target of the authorities should be to increase the money in the hand of the citizens so as to bring up the aggregate demand. This can only be done through a reduction in taxes. All the taxes in the economy should be reduced along with repayment of bank loans and other debt should be postponed. This will increase the money in hand. For the unemployed, the government should hire them in some area of public works(to increase government spending) so that they too get wages which can be spent on consumption. The focus would be on fiscal policy as its much more effective than monetary policy.