The role of fiscal policy is to counteract undesirable trends-- to push the economy out of recession and to slow it down if it becomes overheated and inflation occurs. If the economy is headed downward into a recession, fiscal policy is often used to stimulate the economy. This is what Keynes came up with in the midst of the Great Depression of the 1930’s, when unemployment rates in the U.S. exceeded 25% and the growth rate of real GDP declined steadily for the next decad

In the end, the course of a nation's recession is controlled by the actions of everybody living in the country. Anything influenced by so many people is beyond the control of any one person or group -- it seems to have a mind of its own. But in the United States, time has proven that attitudes and economic factors shift, and every recession is a temporary recession. Eventually, no matter which policy is put into effect, things turn around and an upward spiral is reestablished.

Under monetary policy, the Fed often has difficulty dealing with recessions. The chief culprit during recessions is often a negative psychological atmosphere. Even though the Fed lowers interest rates substantially, businesses and consumers often don't substantially increase borrowing and spending because they believe that business will be bad in the future and jobs may not be secure. This is why fiscal policy is a more reliable and better fit choice.

In looking at a graph, (attached), we see that the equilibrium level of GDP, (Y1), lies below the natural level, (Y2). This im

Some topics in this essay:
GDP Keynesian, , GDP Y1, According Keynesian, Y1 Y2, AS1 AS2, AD1 AD2, fiscal policy, government expenditures, natural level, aggregate demand, cause aggregate demand, expansionary fiscal policy, curve shift, expansionary fiscal, credit market, unemployed resources, wages adjust, increase government expenditures, restoring economy,