Question

What monetary and fiscal policies might be prescribed for an economy in a deep recession?

Answer 1

In deep recession the demand becomes very sluggish and there is low capital generation

Monetary policies to come out of recession
1. Decrease discount rates by the Fed. As this will decrease interest rates in the country and inject liquidity into the economy.
2. Open market operations can be carried by the Fed in which they purchase government securities from the market and this boosts the economy.
3. Quantitative Easing: In this FED buys securities from banks at regular time periods to inject cash into the banks.

Fiscal Policies:
1. The government can reduce tax rates to give a fillip to the economy.
2. They can increase government spending