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How Recessions Work

The Fix Is In

The United States is basically a market economy. In a market economy, producers are usually free to charge what they want for goods and services, and consumers are free to buy goods and services or to not buy goods and services. The forces of supply, demand and competition determine how the economy will behave.

The great thing about this system is that it provides consumers and producers with a high level of freedom. But this freedom has a price -- it puts the economy beyond the control of any single entity. In other words, the government cannot automatically set things right when things go wrong -- only the actions of millions of consumers and producers can turn the economy around.

But the U.S. government does have some ways to influence the actions of consumers and producers. There are two kinds of policies the government might institute to get the country out of recession: fiscal policies and monetary policies.