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Similarly, an increasing level of income spent by consumers has an
accelerating influence on investment. Higher demand creates greater
incentive to increase investment in production, in order to meet that
demand. Both of these factors also can work in a negative way, with

reduced investment greatly diminishing aggregate income, and reduced
consumer demand decelerating the amount of investment spending.

Regulating the Cycle

Since the Great Depression, devices have been built into the U.S.
economy to help prevent severe business declines. For instance,
unemployment insurance provides most workers with some income

when they are laid off. Social security and pensions paid by many
organizations furnish some income to the increasing number of retired
people. Although not as powerful as they once were, labor unions

remain an obstacle against the cumulative wage drop that aggravated
previous depressions. Government support of crop prices shields farmers
from disastrous loss of income. The securities markets are now regulated

by the Securities and Exchange Commission and the Federal Reserve
System in order to prevent a recurrence of the 1929 financial collapse.
The government can also attempt direct intervention to counter a
recession. There are three major techniques available: monetary policy,

fiscal policy, and incomes policy. Economists differ sharply in their
choice of technique.
Monetary policy is preferred by some economists, including the

American Milton Friedman, and is followed by most conservative
governments. Monetary policy involves controlling, via the central
Federal Reserve Bank, the money supply and interest rates. These
determine the availability and costs of loans to businesses. Tightening

the money supply theoretically helps to counteract inflation; loosening
the supply helps recovery from a recession. When inflation and

recession occur simultaneously-a phenomenon often called stagflation-it
is difficult to know which monetary policy to apply.
Considered more effective by American economist John Kenneth
Gal-braith are fiscal measures, such as increased taxation of the wealthy,

and an incomes policy, which seeks to hold wages and prices down to a
level that reflects productivity growth. This policy has not had much
success in the post-World War II period.

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