- If demand for product ‘X’ has fallen, the producer should have to decrease its price in order to boost its demand
- However, it is impractical & difficult to increase/decrease price of products frequently as setting a fresh price level every day will be a nightmare for both producers as well as consumers
- Further, the input costs in production of ‘X’ may also keep varying, thereby rendering it next to impossible for the producer to plan for the future, or even to merely recover his cost of production if he sells below a certain price
- The producer can then let the price of ‘X’ remain the same, but will have to decrease production (responding to lower demand) – Hence he meets the demand at a set price matching his supply with the prevalent demand.
Producers meet the demand at a set price by matching supply with the prevalent demand.
What happens in Recessionary Times?
- Demand falls to very low levels, which makes it unsustainable for producers to maintain output
- This results in a significant drop in production of goods and services
- Hence it is important to introduce measures in the economy that boost demand
- There could be various methods to help in doing this: Interest rate cuts, Stimulus packages etc
If ¯ in demand results in ¯ in production, it is important to take measures to boost demand
Countering Recession
- As mentioned earlier, the best way to counter recession is to introduce measures to push up demand
Fiscal Stimulus Package
- Increase Govt. Spending
o Effective way to increase aggregate demand of goods and services
- Decrease Taxes
o Resulting in increase in the disposable income in the hands of the people
(This measure was suggested by Keynes)
- However, it is impractical & difficult to increase/decrease price of products frequently as setting a fresh price level every day will be a nightmare for both producers as well as consumers
- Further, the input costs in production of ‘X’ may also keep varying, thereby rendering it next to impossible for the producer to plan for the future, or even to merely recover his cost of production if he sells below a certain price
- The producer can then let the price of ‘X’ remain the same, but will have to decrease production (responding to lower demand) – Hence he meets the demand at a set price matching his supply with the prevalent demand.
Producers meet the demand at a set price by matching supply with the prevalent demand.
What happens in Recessionary Times?
- Demand falls to very low levels, which makes it unsustainable for producers to maintain output
- This results in a significant drop in production of goods and services
- Hence it is important to introduce measures in the economy that boost demand
- There could be various methods to help in doing this: Interest rate cuts, Stimulus packages etc
If ¯ in demand results in ¯ in production, it is important to take measures to boost demand
Countering Recession
- As mentioned earlier, the best way to counter recession is to introduce measures to push up demand
Fiscal Stimulus Package
- Increase Govt. Spending
o Effective way to increase aggregate demand of goods and services
- Decrease Taxes
o Resulting in increase in the disposable income in the hands of the people
(This measure was suggested by Keynes)
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