During inflationary recessions

Question

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In inflationary recessions, both an increase in government spending (fiscal policy) and lower interest rates (monetary policy) would normally stimulate demand, but in this scenario, such policies are unlikely to work. This is because the recession is caused by the rise in prices, which lowers the value of assets and makes investing less attractive. Consequently, businesses stop spending, which reduces demand for goods and services. Cutting interest rates does nothing to solve this problem, while fiscal measures such as public spending on infrastructure may just fuel inflation further, making the situation worse. The best approach in this scenario would be to target and mitigate the underlying causes of inflation through measures such as addressing supply chain bottlenecks or reducing the money supply.

During Inflationary Recessions