What is often a reaction of governments during a financial crisis?

During a financial crisis, governments often introduce stimulus packages as a key reaction to alleviate economic downturns. Stimulus packages typically involve increased government spending, tax cuts, or direct financial assistance to individuals and businesses in order to boost economic activity. This approach aims to stimulate demand, create jobs, and promote overall economic recovery. By injecting more money into the economy, the government seeks to counteract the negative impacts of the crisis and restore confidence among consumers and investors.

While other options may represent actions taken by governments in specific contexts, they do not capture the breadth of typical government responses to financial crises as effectively as stimulus packages. Austerity measures, for instance, focus on reducing government spending to balance budgets, which may not stimulate the economy in a crisis. Significant tax increases can also stifle growth by reducing disposable income. Reducing regulatory oversight, although it might create a more favorable environment for businesses, does not directly address the immediate economic needs that arise during a financial crisis. Thus, the introduction of stimulus packages is the most common and widespread government response aimed at promoting recovery during such challenging times.