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Despite zero interest rates and expansion of the money supply to encourage borrowing, Japanese corporations in aggregate opted to pay down their debts from their own business earnings rather than borrow to invest as firms typically do. In a balance sheet recession, GDP declines by the amount of debt repayment and un-borrowed individual savings, leaving government stimulus spending as the primary remedy.Corporate investment, a key demand component of GDP, fell enormously (22% of GDP) between 1990 and its peak decline in 2003. A liquidity trap is a Keynesian theory that a situation can develop in which interest rates reach near zero (ZIRP) yet do not effectively stimulate the economy.Spending is more effective because of its larger multiplier but tax cuts take effect faster.Some recessions have been anticipated by stock market declines.enforce; press; enforce on; force onto; force upon; impose; impose on; impose upon; inflict; inflict on; push; jog; nudge; jostle; jostle away; enjoin; push forward; push ahead; press on; push on; plough on; press forward; press forward/on Macroeconomic indicators such as GDP, employment, investment spending, capacity utilization, household income, business profits, and inflation fall, while bankruptcies and the unemployment rate rise.Recessions generally occur when there is a widespread drop in spending, often following an adverse supply shock or the bursting of an economic bubble.The actual US stock market bottom of the 2008 recession was in March 2009.
Supply-side economists may suggest tax cuts to promote business capital investment.
In an economic cycle, a downturn can be considered a consequence of an expansion reaching an unsustainable state, and is corrected by a brief decline.
Thus it is not easy to isolate the causes of specific phases of the cycle.
Most mainstream economists believe that recessions are caused by inadequate aggregate demand in the economy, and favor the use of expansionary macroeconomic policy during recessions.
Strategies favored for moving an economy out of a recession vary depending on which economic school the policymakers follow.
When interest rates reach the boundary of an interest rate of zero percent conventional monetary policy can no longer be used and government must use other measures to stimulate recovery.