How does a government intervene to move an economy out of a recession?

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Government has many options towards ending a recession. Government can cut taxes on individuals and businesses in order to stimulate spending in these sectors. Businesses will ideally take the money that they would spend in taxes and use it to hire more workers or expand their operations. Individuals will take the money and hopefully shop, thus putting more money into the economic system. Cutting taxes does have drawbacks, however, as deficits can affect the economy adversely in later years.

In the United States, the Fed can also reduce its prime rate by which it loans money to banks. Dropping interest rates encourages investors to put their money into the stock market in order to have higher returns. Lower rates at the bank will also lead more people to borrow for big-ticket items such as cars and houses. These two parts of the economy employ other people through jobs related to the housing and auto sectors.

The government can also take on additional public works spending in order to...

(The entire section contains 4 answers and 686 words.)

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