At what phase does government and central bank apply expansionary or contractionary interventions?
Understand the Problem
The question is asking about the phases of the business cycle where government and central bank interventions, either expansionary or contractionary, are applicable. It aims to understand at what points in the cycle these economic policies are implemented to influence economic activity.
Answer
Expansionary policies are used during recessions and contractionary policies during inflation concerns.
Governments typically apply expansionary interventions during recessions to boost economic activity and contractionary interventions when concerned about inflation to stabilize prices.
Answer for screen readers
Governments typically apply expansionary interventions during recessions to boost economic activity and contractionary interventions when concerned about inflation to stabilize prices.
More Information
Expansionary policies help stimulate economic growth by increasing demand through government spending or lowering taxes. Contractionary policies aim to cool down economies by reducing spending or raising taxes to control inflation.
Tips
A common mistake is confusing the signals for implementation; for instance, using expansionary policy during inflationary periods can exacerbate inflation.
Sources
- Lesson summary: Fiscal policy - Khan Academy - khanacademy.org
- Expansionary Fiscal Policy: Risks and Examples - Investopedia - investopedia.com
- Expansionary & Contractionary Monetary Policy | In Plain English - stlouisfed.org
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