What Are The Roles Of Government In Managing Businesses And Recession

What Are The Roles Of Government In Managing Businesses And Recession

In every country, the government takes steps to help the businesses to achieve the goals of organizational growth to enhance the economy, full employment, and price stability.

what are the roles of government in managing businesses and recession? But before i proceed, the government influences economic activity through two approaches.

  • Monetary Policy(MP)
  • Fiscal Policy(FP)

 

But through monetary policy, the government exerts its power to regulate the money supply and level of interest rates. Through fiscal policy, it uses its power to tax and spend.

 

  1. Monetary Policy(MP)

Monetary policy is executed by the federal reserve system, which is empowered to take various actions that decrease or increase the money supply and raise or lower short-term interest rates, making it harder easier to borrow money. When the federal reserve system believes that inflation is a problem, it will use contractionary policy to decrease the money supply and raise interest rates.

when rates are higher, borrowers have to pay more for the money they borrow, and banks are more selective in making loans. Because money is hard and stressful to borrow, demand for goods and services will go down, and so will prices. To counter a recession, the federal reserve system uses expansionary policy to increase the money supply and reduce interest rates. With lower interest rates, it’s cheaper to borrow money, and banks are more willing to lend with collateral.

when we say, that money is “easy.” It attracts interest rates which encourage businesses to borrow money to expand production and encourage consumers to buy more goods and services. The outcome is that both actions will help the economy escape a recession.

 

  1. Fiscal Policy(FP)

Fiscal policy relies on the government’s powers of spending and taxation. Both taxation and government spending can be used to reduce or increase the total supply of money in the economy when the country is in a recession, and the appropriate policy is to increase spending, reduce taxes or both.

Such expansionary actions will put more money in the hands of businesses and consumers, encouraging businesses to expand and consumers to buy more goods and services. When the economy is experiencing inflation, the opposite policy is adopted. The government will decrease spending or increase taxes to counter or both. Because such contractionary measures reduce spending by businesses and consumers, prices come down, and inflation effortlessness. With the above discussed you now can confidently discuss what are roles of government in managing businesses and recession

%d bloggers like this: