During an economic recession, what fiscal policy is typically recommended?

During an economic recession, the recommended fiscal policy is to increase government spending and reduce taxes. This approach aims to stimulate economic growth by boosting aggregate demand. When consumers and businesses have more disposable income due to lower taxes, they are likely to spend more. Similarly, increased government spending directly injects funds into the economy, creating jobs and further stimulating demand.

This combination helps to counteract the negative effects of a recession, where consumer and business spending often decline. By putting more money into circulation, the intention is to encourage spending, investment, and ultimately foster a recovery in economic activity.

In contrast, increasing taxes or decreasing government spending would likely exacerbate the recession by pulling more money out of the economy. Establishing higher tariffs on imports could also lead to retaliation from trading partners and create higher prices for consumers, which might hinder economic recovery. Therefore, the strategy of increasing spending while reducing taxes is considered effective in combating the downturn caused by a recession.