ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -During a recession, output is below capacity, and there are many unemployed workers. To help the economy grow, the Federal Reserve uses its monetary policy tools to decrease interest rates.

Detailed explanation-2: -A contraction is the third of four phases of the business cycle and refers to an economy in decline. The other three phases are expansion, peak, and trough. A key economic indicator to measure business cycles is real GDP. Contractions can last for months or years.

Detailed explanation-3: -A central bank, such as the Federal Reserve in the U.S., will use expansionary monetary policy to strengthen an economy.

Detailed explanation-4: -Key Takeaways The business cycle goes through four major phases: expansion, peak, contraction, and trough. All economies go through this cycle, though the length and intensity of each phase varies.

Detailed explanation-5: -Expansionary policy can consist of either monetary policy or fiscal policy (or a combination of the two). It is part of the general policy prescription of Keynesian economics, to be used during economic slowdowns and recessions in order to moderate the downside of economic cycles.