Question

*Monetary Policy during a Boom

*Monetary Policy during a Recession

Answer 1

Central bank controls all the monetary policies during a recession and boom's.

During an economic boom the growth of economy takes place in a higher pace.The currency buying power drops in a boom period. So the central bank adopts some methods to control the economic boom. One of the popular method adopted is called contractionary monetary policy. In this method the central bank controls the boom by imposing higher interest rates, decreasing the bond prices,reducing the quantity of credit etc. This method a sort of control the excess demand of economy as it limits the flow of cash among the population.

Recession is a period in an economy where the spending become lower compared to the normal situation.People doesn't have enough money to raise the demand. During a recession,the central bank adopt expansionary monetary policies. It helps in control of economy to increase the money supply, increase the amount of credits or loans,reduce the credit interest rates and moreover to have a rightward shift in aggregate demand of the economy.

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