Is it necessary to incorporate discretionary economic policy in boosting the economy during the recession phase
Introduction
The main aim of the discussion in this paper is to find out if it is necessary to incorporate discretionary economic policy in boosting the economy during the recession phase. The second issue is finding out the best way of implementing the policy during a financial recession, especially when households choose to operate on the Nash equilibrium of Pareto inefficient path (Harashima &Taiji (2017). Government intervention in combating the recessive issues such as low growth of the economy and increasing rates of unemployment is also discussed. The paper proposes different options that the government can use to participate in boosting an economy that is recessing with merits and demerits of each, as explained below.
The ultimate fiscal shock causes a downward change to a country’s economic sector, which is characterized by decreased industrial production and low consumption by households. The best way to curb this challenge is through the improvement of the utilization of produced products by the citizens. Increased consumption will lead to the high demand that can only be met through an increased rate of production. Top production results into optimum use of both capital and human resources hence high employment rates. Households are, however, known for being risk-averse and having a high desire for a smooth fiscal state thus cannot cooperate in the increase of consumption (Harashima &Taiji (2017). The government is therefore required to intervene and curb the challenge.
The government can choose to avoid the intervention, boost consumption, or reduce the tax rates in combating the challenge. Not intervening may result in low consumption hence high rates of unemployment and prolonged recession (Harashima &Taiji (2017). Participation in consumption leads to high combined use, thus high employment rates and high government rates. Reducing tax rates means more money to the households, but if they decide not to cooperate, the rate of unemployment will remain high, and national debts will also be high. The government should, therefore, choose to improve consumption, which will increase production and employment rates leading to favorable economic rates and increase tax rates in the future to pay the involved debts.
Reference
Harashima &Taiji (2017). Should a Government Fiscally Intervene in a Recession and, If So, How? Retrieved from; https://mpra.ub.uni-muenchen.de/78053/1/MPRA_paper_78053.pdf.