Macroeconomics
discouraged leading to a decrease in aggregate demand and ashiftinitscurvetothe left. ○ Monetary Policy: This is a policy implemented by an economy’s central bank (the FederalReservesBankortheFedintheUSA).Ituses moneysupplyandinterestrates astoolstoaffecttheeconomy.An expansionarymonetarypolicy consistsofincreasing money supply into the economy and decreasing the interest rate. This stimulates investmentandspendingoninterest-sensitiveproducts(e.g.,bonds,stocks,etc.)which in turn leads to a higher aggregate demand that shifts its curve to the right. A contractionarymonetarypolicy ,ontheotherhand,consistsofreducingmoneysupply and increasing the interest rate in order to discourage investment and spending. Consequently,aggregatedemanddecreasesanditscurveshiftstotheleft.Government economic policies will be discussed in detail in later chapters.
B. Business Cycles and Economic Fluctuations
Business cycles , also known as trade cycles, refer to the recurrent pattern of fluctuations in an economy'soveralleconomicactivity,measuredbythegrowthofactualoutput,overtime.Thesecycles consist of several phases, each characterized by distinct changes in economic indicators such as employment, production, and overall economic output. ● Expansion or Growth: This phase marks a period of increasing economic activity. It involves rising levels ofproduction,employment,andconsumerspending.Economicgrowthduringthis phase is typically accompanied by lower unemployment rates and improved consumer confdence. ● Peak or Boom: The peak represents the highest point of economic expansion , signaling a period of full employment and high economic output . However,atthispoint,theeconomy's
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