... from reoccurring. The government has fiscal policies that can help avert massive recessions, and help pull the economy out of minor recession. Aggregate demand is more easily changed by fiscal policy than aggregate supply (AS), therefore AD is targeted by the most common fiscal policies (Schmitt 2003). The most common fiscal policy actions during a recession are: tax cuts, increased spending, and automatic fiscal polices such as unemployment insurance. Tax cuts and increased spending try to shift aggregate demand to close recessionary gaps while unemployment insurance acts as an automatic stabilizer (Baumol and Blinder 2006). Fiscal policies tend to have larger effects than monetary polices, but are limited due to lags. Tax cuts and government spending have lags: recognition lag, administrative lag, and impact lag. It may be possible that the economy will have self corrected long before any tax and spending change effects are felt (Schmitt 2003). Automatic fiscal ...

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