Countercyclical policy that seeks to gdp growth and the level of employment is appropriate when ____________.

1 answer:

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The countercyclical policy is complementary to the downfall of GDP. The preferred countercyclical policy is frequently monetary strategy.

Consumer spending decreases and total demand falls during a recession, which allows the government to implement a countercyclical policy to the way the economy is moving. Such a countercyclical policy would result in the intended expansion of output (and employment), but would also raise prices because it would expand the money supply. Increased demand will put pressure on input costs, particularly labor, as an economy draws closer to operating at maximum capacity. Hence, workers then spend their extra money on more products and services, which drives up prices and wages and accelerates overall inflation, an outcome that governments often try to prevent with countercyclical policy.

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