Chapter 13, Problem 19AA

To determine

To evaluate: The aspects of government activity that affect the business cycles.

Explanation of Solution

The most general method of increasing the total demand is by using the fiscal policies such as increased government spending and/or tax cuts, which triggers the economic expansion.

Fiscal policy is the decision a government takes on its spending and taxes. If a government wishes to enhance the growth in the nation, the expenditure on output would rise. Purchasing power would be boosted by this. So government spending helps to boost economic growth.

By bringing more capital into circulation, tax cuts stimulate the country. They even lift the deficit if budget cuts don't outweigh them. As a consequence, tax cuts boost the economy in the short-period, but if they lead to a rise in federal debt, they depress the economy in the long run.

Thus, Variations in monetary policies in the world are still an important factor in business cycles, irrespective of changes brought on by political forces. The most common method of raising consumer demand is to use monetary policy that is by increased government expenditure and/or tax cuts, that are causing an economic expansion.

Economics Concept Introduction

Introduction: The business cycle is known by various terms such as the trade cycle, defining the gross domestic product's downward and upward shift along its growth course in long-term. The time span that encompasses a single product's boom and contraction is known as the trend of the business.