#Collaborativearticles - #1 - How can you use monetary policy to stabilize the business cycle?

My 1st Contribution to #Collaborativearticles

Monetary Policy (MP) (managing interest rate & inflation) and and Fiscal Policy (FP) (focusing on economic growth) should work in harmony. For Business Cycle, MP has direct & indirect impact. Yes, the transmission time for the MP is 2-3 quarters, but the sentiments does job earlier. In recession, MP will lower interest rates, augment M2/M3 to increase aggregate demand but support should come from FP by higher spending, lower tax & incentives (2008 crises). When the economy is heated with high inflation (post Covid recovery period), only the interest rate hike might not be enough, the tone & spirit of policy will play its part. The unintended impact (like asset bubble, liquidity overhang, unaffordable borrowing) also needs to be watched.

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Here is my 1st Contribution in #Economics #Collaborativearticles.

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