During an economic recession, what can fiscal policy do to help stimulate the economy?

Increasing government spending and reducing taxes during an economic recession is a key strategy in fiscal policy aimed at stimulating the economy. When the government increases spending, it injects money directly into the economy, creating jobs and increasing demand for goods and services. This can help to counteract the effects of the recession by boosting consumer confidence and encouraging private sector investment.

Additionally, reducing taxes leaves individuals and businesses with more disposable income. This increase in disposable income can lead to higher consumer spending, which is crucial during a recession as it helps to stimulate economic activity. When consumers spend more, businesses may respond by increasing production, hiring more workers, and investing in growth, further aiding recovery.

Overall, this combination of increased government spending and tax cuts functions effectively to bolster aggregate demand, stimulating economic growth during challenging economic periods.