Introduction
This essay will explain how economists establish if the economy of a country is in recession or not. The essay will also analyse and review various policy tools that are often used by the government to guard against recession or to reduce the impacts of recession on the economy and the people. The essay will be divided into two parts. In the first part, the meaning of recession will be provided and why recession can be considered as an economic problem will be explained. Also, the first part will explain how the strength and depth of recession can be measured. The second part of this essay will explain various economic policy tools that government often use to make sure that economy of a country grows. Part 1
Recession is defined as a condition whereby a country experiences temporary economic decline, during which time the trade and industrial activities in the country are reduced; and the Gross Domestic Product (GDP) of the country fall in two successive quarters (Arnold, 2014). A recession can also be said to have occurred if there is a big reduction in the economic activity of a country, and this last longer than few months (Arnold, 2014). When there is a recession in a country, there will be a fall in the country’s industrial production, employment, real income and wholesale –retail trade (Arnold, 2014). This means that recession often has negative effects on the economy of a country and that recession can lead to unemployment for people and lack of profits for businesses (Arnold, 2014).
From the above definition, it can be assumed that if the GDP of a country fall for six months, the country will go into recession. GDP of a country is normally calculated every year and it is the monetary value of the combination of finished goods and services that are produced in a particular country within a particular period (Knoop, 2010). GDP covers private