Government policies are really important in helping the economy bounce back during tough times, like a recession. They do this mainly through two types of actions: fiscal policy and monetary policy.

1. Fiscal Policy:

   • When the government spends more money, it can help create demand for goods and services. For example, if the government puts in $100 billion, it might lead to an increase of$150 billion in the country's overall wealth, known as GDP.
   • Cutting taxes can give people more money to spend. For instance, if income tax is lowered by 1%, it could make the GDP go up by about 0.5%.

2. Monetary Policy:

   • Lowering interest rates makes it cheaper for people and businesses to borrow money. If interest rates drop from 5% to 1%, businesses might invest 10% more.
   • Another strategy called quantitative easing can add more money to the economy. This helps keep prices of things like homes and investments higher, making people feel wealthier.

When these policies work together, they can help speed up recovery by reducing unemployment and building up confidence among shoppers.