how does an economy recovers from a downturn and returns from a boom?

Question

how does an economy recovers from a downturn and returns from a boom?

how does an economy recover from a downturn and return from a boom?

Answer 1

Do you mean recovers from a downturn and returns TO a boom. Studies of economy theories has shown that the government in question are the primary force in determining the economic direction of the country. Two ways to go about it is via the monetary policy and fiscal policy which can be promoted by the govt.

Simple example of fiscal policy is the govt can planned for a deficit budget. A deficit budget means the govt spends more than its revenue. The govt can spend money by creating construction project. This projects will create needs for more employment and materials in the market. Eventually it will has a trickle down effect to the economy as a whole. Higher employment means higher income and leads to higher spending power thus creating more demands and supply which is a sign of a booming economy.

As for monetary policy, the government can manipulate their currency to make them more competetive againts other currency. This favorable in an export oriented economy as export will increase as their produce becomes cheaper. Increase in supply to meet those demand will also means increase in manufacturing activities and thus increase in employmnet and spending power.

In short any policy which encourage the people to spend will increase economic activity which then lead to the boom.

Answer 2

The answer depends on your theory of business cycles. There were many downturns which the economy recovered from before there was a Fed or monetary and fiscal policies.

Answer 3

sell bonds............