Government spending in the 2nd quarter increased by 11% and this spending affected the car industry and the housing market. Inventory also declined in this quarter and this reduced the GDP by 1.39%, however when aggregate demand increases the inventory level is also expected to increase. According to the congress budget office the 3rd and 4th quarter level of GDP is expected to improve due to increased government spending and a 1.6% growth rate is expected. However the recovery process is expected to take longer given that those consumers are faced with high unemployment rate, high debt levels and restricted borrowing. (Alan Rapperport (2009))
The article highlights the role of government in a recession, a recession is characterized by high unemployment rate, declining GDP level and reduced aggregate demand, from the article expansionary fiscal policy has been used to aid the economy out of the recession. However this has resulted into budget deficits which are expected to reach 11.6% of GDP this year.
Fiscal policies include government spending and taxation, in a recession an expansionary fiscal policies is used, this policy measure involves increased government spending that help increase aggregate demand. ...Show more