Question

What are the pros and cons of using contractionary and expansionary monetary policy tools under the following scenarios: recession or depression and robust economic growth?

Answer 1

Solution -

Recession:

The period of general decline in the economy is given a reference. The monetary policy used is extended because it will stimulate the demand of the customer and reducing the cost of the money will create employment and reduce unemployment rates. In case of depreciating recession, compressed monetary policy will be useful to reduce inflation and reduce prices of goods and services.

Inflation:

When it comes to growth in the economy, services and services, it refers to the situation. Contract monetary policy is useful because it will reduce the fiscal deficit and reduce inflation. Expanded monetary policy can be harmful because it will increase at constant prices so the high rate of inflation will increase.

robust economic growth:

There is a time when the economy experiences the expansion of GDP. If the total demand exceeds the total supply, the result will be the demand for inflation to pull. In this situation, the contractor monetary policy is to repay the loan, such as personal loans and mortgages, to repay the customer loan.This will reduce total demand. The disadvantage of this policy is a decline in unemployment growth and GDP growth. Extensive monetary policy will encourage capital investment so that the overall demand for total demand continues at a rapid pace. The idea of ​​this policy is that the total demand will always turn towards total supply due to inflation.