What levers are typically available to a Government to exit an economic downturn?

I can think of currency devaluation, efficiency improvements and infrastructure spending (possibly using funds raised by borrowing).

  • 1
    $\begingroup$ There are two main ones - monetary expansion, where the government stimulates spending by lowering the cost of money and government spending, where the government stimulates the economy by actively participating in it. $\endgroup$
    – Jamzy
    Feb 6 '19 at 16:48

The usual policy options are.

  1. Monetary policy - lower interest rates and/or expand the monetary base.
  2. Fiscal policy - expand the fiscal deficit (government spends more and/or taxes less).
  3. If the value of the currency is controlled, devalue.
  4. If there are controls on lending (now rare in the developed countries), loosen them.

Something like efficiency improvements (how can the government endure this?) may help long-term growth rates, but it is unclear whether they will have an immediate impact. For example, if increasing efficiency involves firing workers, there would be a further reduction in household demand, which will not be corrected until they can find new jobs.


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