As the recession of 2008 became prevalent in the united states, the fed used while the government used to even out the swing of the business cycle.

- liquidity and special programs

- government spending and tax cut.

Explanation:

The Fed liquidity response involved traditional policies of reducing the federal funds rate from 5.25% to a range of .25% motivated by the desire to improve functioning of financial market and institutions.

Government spending and tax cut programmes include economic stimulus act of 2008 and America recovery and reinvestment act of 2009.

The monetary policy and fiscal policy

Explanation:

Recession can be defined as the state of decline in the economy of a nation which will also have a negative effect on the level of employment in the country. it is a period of slow business activities which can last for a period of six months or a year. it is a period in which there is a credit crisis in the economy which made it difficult for businesses to secure needed funds for business activities. Likewise banks find it difficult to lend to the business sector.

The business cycle involves the stages of expansion when the economy experience a boom, this stage is when the GDP growth rate is not too high nor too low. This stage is followed by peak when the GDP growth rate is higher followed by increase in the prices of goods and services at this stage the expansion will turns into contraction. The contraction stage is when there is a decline in economic growth at this stage the economy goes into recession. The last stage is the stage of trough when the economy moves from stage of contraction to expansion.

In a period of recession, the Fed can used monetary policy which is the economic policies of using monetary policy instruments such as open market operation, bank rate, legal reserve requirements, Directive, and moral suasion to control the supply of money in the circulation. The Fed could buy treasury bill from the commercial bank and gives them money. This measures will increase the liquidity position of the commercial banks which will encourage them to lend to the business sector. The Fed could also lower interest rate, this measures will also encourage businesses to borrow from the banks for increase in productivity in the economy.

The government could also fiscal policy, the fiscal policy is the economic policy of using revenue and expenditure to regulate the economy. The government can reduce the personal income tax, this measures will increase the disposable income of the people which will encourage them to buy more goods from the business sector. The government can also increase their spending on the provisions of infrastructural facilities, this will put more money in the economy and increase the purchasing power of the people and encourage them to buy more goods and services from the business sector.

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