How To Avoid a Recession

With the US heading towards recession, there are several things being done to try and avoid recession. Basically, the government and monetary authorities need to try and increase Aggregate Demand and also increase consumer confidence. There is no guarantee that they will work.

Policies to avoid a Recession

1. Cutting Interest Rates.  Recently, the Fed cut interest rates by 0.75% a big stimulus for consumer spending. Amongst other things, lower interest rates reduce mortgage interest payments, giving consumers more disposable income. – Fed Cut Interest rates by 0.75%
   
2. Freeze on Subprime Mortgage Rates. There is a 5 year scheme to freeze subprime rates, preventing house repossession. Effects of Freezing subprime rates
3. Tax Cuts. Cutting taxes increases consumer disposable income. But, will people spend if they are nervous about the future? Can tax cuts avoid a recession?
4. Increase in Government Spending. Higher government spending is another way to stimulate the economy. The US has not announced much in this area. They are hampered by budget deficit and preference for tax cuts.
5. Devaluation. The devaluation of the dollar is not particularly a policy, it is something that is just happening. However, the weaker dollar is boosting the US export sector and could help avoid recession. Effects of devaluing dollar.

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