ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -When inflation is too high, the Federal Reserve typically raises interest rates to slow the economy and bring inflation down. When inflation is too low, the Federal Reserve typically lowers interest rates to stimulate the economy and move inflation higher.

Detailed explanation-2: -Expansion is the phase of the business cycle where real gross domestic product (GDP) grows for two or more consecutive quarters, moving from a trough to a peak. Expansion is typically accompanied by a rise in employment, consumer confidence, and equity markets and is also referred to as an economic recovery.

Detailed explanation-3: -As an economy grows, businesses and consumers spend more money on goods and services. In the growth stage of an economic cycle, demand typically outstrips the supply of goods, and producers can raise their prices. As a result, the rate of inflation increases. Inflation is a sustained rise in overall price levels.

Detailed explanation-4: -The action taken by the Fed in order to fight inflation is the contractionary monetary policy. It includes reducing the money supply in the country thus slowing the economy down and diminishing inflation. One of the tools used to achieve this goal is the increase in interest rates.