It is important to balance the economy of a country during the recession period. Monetary and fiscal policy plays a critical role in stabilizing the economy by shifting of the Aggregate Demand, right for the expansionary and left for the Contractionary. The monetary policy always manipulates the growth rate in the supply of money by ensuring the fluctuations in nominal GDP and also the unemployment rates occur. Bank open markets committee carries the monetary policy to increase the growth of money during the inflation periods. Therefore, this policy tries to raise the AD in a country during the period of recession by ensuring that money supply is increased. The fiscal policy deals with government budgets. During the recession, this policy ensures the government to increases its purchases by buying more goods and services. The government then should pay back the loans when the country gains stability by reducing the number of goods and services acquired. According to this policy, the government should borrow money during the recession period to grant its bills. This then will be paid back when the country recovers by increasing the amounts of tax collected.
Economic stabilization is essential during the period of recession because through the monetary policy, inflation in a country is firmly anchored at a level corresponding to with the stability of prices. Therefore, the government should ensure that the economic growth of its nation provides employment opportunities to the citizens. Policymakers should also realize that debt accumulation is not a good idea because it amounts to larger percentages of a country’s GDP hence paying back becomes difficult. Therefore, the government has powers to regulate the economy of a nation at all costs for the wellbeing of its citizens.
