Suppose an economy is in a recession due to a collapse in the financial markets. There is no natural disaster or war-like shock. Explain why government spending -- through a stimulus -- might be useful in this scenario, and why consumption and business investment might respond positively to an initial round of government spending. Will government spending in this scenario increase, or decrease unemployment rates? Were the stimulus checks of 2020-21 an example of this type of economic intervention?"
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This leads to a decrease in consumption and business investment, which further exacerbates the economic downturn. Show more…
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