Peter DeCaprio: What are some strategies for improving the economy during a recession or depression?

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One strategy is to follow a fiscal policy, including tax cuts and government spending. Governments use these policies during downturns to stimulate the economy. Deficit spending is another option that can be implemented to assist GDP growth. While this may add to the total debt, it can help increase overall consumption and help grow an economy. For example, countries such as Brazil have been able to use deficit spending since 2009 when they began using the Real Plan, which former President Fernando Henrique Cardoso to stabilize inflation through adjusting interest rates. Countries such as Canada and Poland also increased their deficits after the 2008 financial crisis. Others like Germany did not want fiscal stimulus because they claimed it would lose investor confidence. Another strategy is to increase the economic growth rate through expansionary monetary policy. This can be done by lowering interest rates, which were performed by the U.S., U.K., and Japan after the 2008 financial crisis to promote increased borrowing and lending and stimulate aggregate demand in an economy. For this to work, there must not be a major risk involved with investing money into capital projects, which may cause conflict between contractionary fiscal policy versus expansive monetary policy if they are implemented at different times during a recession or depression.

 “The Fiscal Policy Choice: Expansionary vs Contractionary”

How can you tell if a country’s economy is growing or receding?

The difference between the GDP of two consecutive years shows whether real economic growth is occurring. Real gross domestic product (GDP) equals current-year GDP plus net value changes in business inventories and consumer durable goods. It excludes price changes, and net foreign trade flows to exclude the effect of inflation/deflation on observed changes in income. According to Peter DeCaprio another way to tell whether an economy is growing or receding is by looking at unemployment rates because they tend to rise during recessions and fall during expansions. Furthermore, other factors such as tax revenues, stock prices, consumer spending levels, and disposable income may indicate an expanding or contracting economy.

Planetary Economics (n.d.) “What Is Real Economic Growth?” Planetary Economics

The difference between the GDP of two consecutive years shows whether real economic growth is occurring. Real gross domestic product (GDP) equals current-year GDP plus net value changes in business inventories and consumer durable goods. It excludes price changes, and net foreign trade flows to exclude the effect of inflation/deflation on observed changes in income. Another way to tell whether an economy is growing or receding is by looking at unemployment rates because they tend to rise during recessions and fall during expansions. Furthermore, other factors such as tax revenues, stock prices, consumer spending levels, and disposable income may indicate an expanding or contracting economy.

How is the Gross Domestic Product (GDP) determined?

The gross domestic product (GDP) measures of goods and services produced by a country in a year are the market value of all final goods and services produced within a country in a given year, as measured by their price minus taxes plus subsidies; GDP can be expressed as GDP = Consumption + Investment + Government Spending + Exports – Imports.

There are five different approaches to determine GDP:

1) Expenditures approach

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2) Value Added

3) Income approach

4) Output measure

5) Labour inputs.

The Hubei University of Economics (n.d.) “The determinants of the gross domestic product,” Hubei University of Economics

What are some strategies used by governments to increase economic growth?

Governments use various strategies to try and increase economic growth, such as monetary easing or increasing government spending to promote aggregate demand. However, there is no one magic bullet solution since all countries have different constraints they must abide by because it would not be sustainable if other countries could implement whatever policy they want without restriction, leading to an unstable global economy.

Conclusion by Peter DeCaprio:

Economic growth is necessary for any country. However, we mustn’t focus all of our policy resources on a few tools and expand their time and time again because doing so would be unsustainable, leading to an unstable global economy.

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