Which government action is typically taken to influence the economy during a recession?

Lowering interest rates is a common government action taken to stimulate the economy during a recession. When the economy is struggling, central banks, such as the Federal Reserve in the United States, may lower interest rates to encourage borrowing and investing. Lower interest rates make loans cheaper for consumers and businesses, stimulating spending on goods and services, which can help to boost economic activity. This increase in spending can lead to job creation and help lift the economy out of a recession.

In contrast, increasing taxes can reduce disposable income for individuals and businesses, leading to decreased spending. Decreasing government spending typically results in less fiscal stimulus in the economy, which can exacerbate a recession. Restricting credit availability can also hinder economic activity, as it limits access to loans necessary for investment and consumption. Therefore, lowering interest rates effectively promotes economic growth and stabilization during challenging economic times.