With a lower interest rate, that incentive no longer exists and this is usually an instrument by which private entities can be driven out of saving and into investing into new business on the market. Obviously, such an action usually creates the appropriate momentum for economic development, creating jobs, increasing governmental revenues through revenues from taxation and helping the country out of the economic recession.
In terms of fiscal policies, the measures that the government needs to take will all attempt to move the IS curve further to the right and, in this sense, to stimulate the national economy, reduce the period that the country will pass through the recession and determine a national economic growth. There are two important means by which this can be done: increased governmental spending and decreased taxes, with a less restrictive taxation policy. As we can see on the IS - LM graph, both of these measures will move the IS curve to the right.
First of all, an increased governmental spending is a mean by which new jobs can be created and unemployment can be kept low. Governmental intervention in this direction can manifest itself, for example, by new construction projects, including new roads or buildings. While on one hand, this stimulates employment, as individuals will need to be employed in order to complete these public projects, on the other hand, these are also the types of projects likely to stimulate the economy in its entirety and be useful for economic development in the long run.
Second, a decrease in taxation levels, also...
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