Gdp-Economics

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of recession when the economy isn’t producing as much. The government is supposed to spend money to be able to increase aggregate demand and close the GDP gap. The amount of money that is needed to close that gap is called the recessionary gap. The recessionary gap is not equal to the GDP sue to the multiplier effect. When the government begins to spend money the effects on GDP are greater than the amount of money spent. The GDP gap can only be equal to the recessionary gap when multiplied by the multiplier.

Discuss the role of the Federal Reserve in getting an economy out of recession.

The Federal Reserve by definition is the body that oversees all the monetary policy of the United States. The role that it plays to get an economy out of a recession is to set monetary policy that will be conducive to creating economic growth. The Federal Reserve can manipulate the interest rates that are charged by lenders in the U.S. By reducing these interest rates borrowing increase because of a drop in the price leads to an increase in activity. Increase borrowing is good for the economy because it leads to more buying of consumer goods and capital goods. In addition to interest rates the Federal Reserve can guy government securities. Essentially they are just printing more money and using money that previously did not exist to buy securities from banks in the private sector. This then puts more money in the economy and it makes it easier for consumers and businesses to borrow.