What is the Law's Role in a Recession - Essay Example

Task A recession economy refers to a situation where a government runs in a deficit. This essay seeks to examine diverse ways in which a government can intervene in response to a recession situation. Some of the ways to be considered include fiscal and monetary policies. As a point of departure, Fiscal policy refers to government cut in taxes or increased expenditure in a bid to boost the aggregate demand. This policy is intended to improve the economy’s real GDP through increased total expenditure.

This trend enables the manufactures to increase their output level. On the other hand, the monetary policy implies that, the interests are lowered or money supply increased to influence the aggregate demand. This policy influences the equilibrium interest rate falls in the money market consequently manufactures produces more goods and services. This shifts the aggregate demand curve to the right. The shift in demand and supply curve is associated with the Say’s law, which states that market prices changes until the quantity demanded is equal to the quantity supplied.

In this, state of equilibrium, when the demand is high the prices increases causing inflation in the market. This situation is represented in the following graphical illustration. Price Demand Equilibrium point P Supply Q Quantity