Today, as all the countries are looking forward to implementing the various ways through which they can help their economy rise above the relief level, the recession policy is the only source that can actually help them gain what they are longing for. The recession policy is the only elements that a government has which can somehow enhance their economic conditions. The recession policy has the power to slowly but effectively uplift the traumatized world economy. The basic recession policy that all the governments of the various countries can possibly follow during this grieve situation include:
1. Monetary Policy for recession:
It has been noticed that a lower interest rate makes people to spend their reserves and investments more openly in comparison to that of the higher interest rates. Moreover, the lower interest rates also lead into other situations such as:
• It reduces the cost of borrowing money or taking loans which thus encourages investment of money.
• It also reduces the cost of mortgage payments which thus increases the disposable income of all the house owners.
• And finally, these lowered interest rates also reduce the incentive savings.
Hence, if the MPC (Marginal Propensity to Consume) cut certain rates then the severe conditions of the recession might possible by avoided. At present, the US interest rates are nearly 1% and thus, the effect of this rate going to a low of 0% on the economy is simply unknown. But, just as we think about the cut rates, there are also certain problems which arise with it.
The various related problems with the cut rates:
• Deflation: With the cutting rates dropping to an all time low, the chances of deflation arise. Even the 0% low interest rates prove to be simply ineffective on deflation.
• Liquidity trap: The cutting rates constrain the expenses or the investments of those business people who have lower confidence in their ideas and work. This is a very common problem today. During a time when loans are cheaper than ever, no one wishes to invest their money in this recession thinking about its variant risk factors.
• Bank loans: Moreover, the banks simply don’t wish to lend loans due to the main reason of liquidity shortage.
• Depricate exchange rate: It is interrelated. A lowers interest rate simultaneously reduces the exchange rate which can further cause the inflation to increase by increasing the cost of all the imports.
• Loss of the savers: As the interest rates in the market are lower than the inflation, most of the savers will have to suffer from a decline in their savings or investments.
• Time lag: And most importantly, these lower interest rates take a minimum time period of 18 months to have a positive effect.
2. Fiscal Policy of recession: For a boost in the economic growth of a country, higher government spending is very effective. But this Fiscal policy of recession depends on a few factors such as:
• Income tax cuts for high earners and the poor.
• Initially, borrowing must be low and then later with the improvement in the conditions it should be raised.
• The time it is implemented as it takes some time to have a positive effect.
But this policy is not guaranteed to bring in a positive result.
3. Increase money supply policy: Some or the other type of radical movements are needed during inflation. For instance, increase the money supply, etc. but these plans are too radical for the monetary authorities to think about. But this is one of the possible ways that a country can try to follow to control the recession effects.

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