Question

effectiveness of counter-cyclical policies

Answer 1

Counter cyclical policies means the policies that goes against the movement of the phase of the business cycle. It means that government spending increases when there is a recession, and government spending reduces when there is a boom in the economy. On a similar note, monetary policy is also implemented.  Counter cyclical policies are important as well as effective in a way that it tries to bring stability in the economy and regulates the growth. Besides, counter cyclical policies help economy grow on its own while it provides support, when the economy suffers. It also increases its effectiveness and significance.

For example, in USA, the government and Fed applies counter cyclical policies and it is highly effective after the financial crisis and the recession of 2008. Government came up with the huge spending budget as well as expansionary monetary policies. Though, with economy recovering and growth showing again, the government spending slowed and let the economy grow its own. Fed also did the same and started increase the federal fund rate. It is the way, counter cyclical policies are implemented. Though, it suffers from the time tag that can reduce its effectiveness.