Business Intelligence

Recession-Fighting Serendipity: Well-Timed Government Spending Can Blunt Economic Contractions

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Executive Summary

Japan's economy has been stuck in what economists call the "Zero bound" since 1996. The zero bound is a danger zone where an economy's short-term nominal interest rate is at or near zero percent. It can be a portal to an economic vortex that beckons massive unemployment and a deflationary spiral. The zero bound is also where the U.S. economy has been lodged since December 2008. Economists argue heatedly over the best way to escape the zero bound's danger vortex. An old idea that has been around since the Great Depression is that government spending can jolt a contracting economy with stuck interest rates back into the black.

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