How does the government typically respond to an economic recession?

The government typically responds to an economic recession by implementing stimulus measures to boost the economy. During a recession, economic activity declines, leading to higher unemployment and reduced consumer spending. To combat these negative effects, the government often employs fiscal policy strategies, such as increasing public spending and cutting taxes, to stimulate demand. By injecting money into the economy, the government aims to create jobs, increase consumer confidence, and encourage spending, which can help pull the economy out of a downturn.

Stimulus measures can take various forms, including direct payments to individuals, infrastructure projects, and funding for social programs. The goal is to invigorate economic activity and spur growth, laying the foundation for recovery and expansion.

In contrast, other options, such as increasing taxes or decreasing public service spending, would likely reduce disposable income and diminish demand, worsening the recession. While regulating financial institutions more strictly could be necessary to address issues uncovered during a recession, it is not a direct stimulus measure aimed at economic recovery. Thus, implementing stimulus measures is the most effective government response during a recession.