An economic recession is the period where the economy suffers a general reduction in overall output and is characterized by unemployment. Recessions are times where GDP is very low compared to past periods. This results in the public having little faith in the country’s economy. An economic expansion, on the other hand is the time when the economy is booming. It is characterized by high levels of employment, the national production, GDP, is very high compared to normal periods. The expansion and recession periods together alternate to create business cycles.
If an economy recedes, the government of that economy can choose to intervene or leave the market conditions to bring the economy back to normalcy. During the world economic recession in the 1930s, Keynes developed a Keynesian model which advocated for government intervention to solve the recession. The government can intervene by using expansionary policies on the macro economy, for example, the increase in government expenditure, raising money supply and cutting down on the taxes it levies.
The government’s intervention through tax cuts will reduce the unemployment levels, create incentives for potential investors, increase the public’s purchasing power and improve welfare in general. This was felt back n the 1930s when the US government used this policy to deal with the economic recession. The government, through the central bank (Federal Reserve) can also reduce the rates of interests. This will encourage the public to acquire loans which increases the money supply in the economy. This will play a big role in curbing a potential economic recession and leading the economy to stability. The great depression was a case in point where the government intervention was important in stopping the economic decline. The 2008 recession in America was dealt with using government policies of intervention in the economy.
