Government Policies in a Recession

What can governments do to improve economies in a recession?

One tool is monetary policy. It can increase the supply of money to increase aggregate demand. In a recession money is not flowing enough to cause inflation but as the economy heats up, then that becomes more possible.

The other tool is fiscal policy. Government can run a deficit. It can do this either two ways: a) spending more money on targeted areas of the economy, or 2) tax reductions. The problem there is that the government then has to borrow money in order to cover the deficit. That means that money is turned back over to the government in exchange for notes.

This indicates a consequent reduction in government operations to cover the costs of its economic management policies.