Fiscal Policy During an Economic Recession Essay

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Fiscal Policy

The economic contraction also meant a decrease in demand, due to decreasing purchasing power for the consumers. The decrease in demand led to contracting businesses, resulting in increased unemployment, since the firms had less need for labor, given the fact that the demand decreased, along with the amount of business.

Traditionally, during a recession and after, the fiscal policy is designed so as to restart the economy. Restarting the economy means encouraging the businesses to produce to the levels prior to the recession, to create jobs and boost employment. With this in mind, the fiscal policy is designed to create the necessary facilities for the businesses in a tough economic environment, previously characterized by an economic contraction.

In order to encourage economic growth, there are two main, generally accepted fiscal policies that the government can apply.

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One is to lower taxes, the other is to increase governmental spending, in order to create new projects that can employ individuals and, thus, reduce unemployment. This paper will aim to look at how each of these fiscal policies functions, from an economic perspective, and what the impact is on the economy.

The first fiscal method that was mentioned was to lower taxes. Lowering taxes means that the business will have a lower fiscal burden and that the overall sum that it will need to pay to the government and the local authorities will decrease. In other words, after subtracting expenses from revenues and paying any other fees and interests, the final sum that the company will have….....

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"Fiscal Policy During An Economic Recession" (2014, April 13) Retrieved June 16, 2024, from
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