Understanding Expansionary and Contractionary Policies

Economic Low Effects

High unemployment, low production, low spending.

John Maynard Keynes

Economist supporting government intervention in economy.

Tax Revenue Threshold

Revenue increases until tax rates become too high.

Contractionary Policies

Higher tax rates and lower government spending.

Expansionary Monetary Policy

Central bank policies to promote economic growth.

Expansionary Fiscal Policy

Government policies to stimulate economic growth.

Contractionary Monetary Policy

Central bank policies to regulate economic growth.

Contractionary Fiscal Policy

Government policies to reduce economic growth.

Business Cycle

Fluctuations in economic activity over time.

Expansion

Period of increasing economic activity.

Boom

High economic activity before the peak.

Peak

Highest point of economic growth.

Recession

Period of declining economic activity.

Depression

Low economic growth before a trough.

Trough

Lowest point of economic growth.

Economic Peak Effects

High production and employment, slow expansion.

Effectiveness of Policies

Depends on proper timing of implementation.

Limitations of Policies

Can have opposite effects on consumer spending.

Milton Friedman

Economist opposing government intervention in economy.

Phillips Curve

Graph showing relationship between unemployment and inflation.

Inflation and Employment

Higher inflation correlates with lower unemployment.

Laffer Curve

Graph showing relationship between tax rates and revenue.

Expansionary Policies

Lower tax rates and higher government spending.