- First, recessions are costly. Individuals lose jobs and income. The economy wastes resources and can sometimes even face a permanently lower output path.
- Second, fiscal policy is an effective aspect of the government’s part of a response to a recession. Expansionary fiscal policy can increase output; it can increase the utilization of resources; and in particular, when monetary policy has reduced interest rates to zero, it can meaningfully shift the economy’s trajectory upwards.
- Third, increasing the automatic nature of fiscal policy would be helpful. Increasing spending quickly could lead to a shallower and shorter recession.