Question:
This is a continuation the above problem. It appears that we both agree that we have identified the economic conditions as recessionary. It appears that the FRB has already tried to stimulate the economy by lowering interest rates and that has proved unsuccessful; therefore, further reductions would probably be futile. We both agree that GDP is very low. Inflation is stable and not very high. Should the economy be left alone to see if it will make the necessary adjustments? Or should the government use fiscal policy and give tax cuts and tax credits? Would this stimulate the economy sufficiently? Or would it be better for the government to do some heavy spending to stimulate this economy. I think the latter would be the best option. Again, am I on the right track? I realize that the last two possibilities would result in a higher budget deficit.