Series 3: 6.1.6.1. Demand: Fiscal Policy And The Business Cycle

6.1.6.1. Demand: Fiscal Policy and the Business Cycle

Fluctuations in the economy come in more or less regular cycles called business cycles. A business cycle includes four phases. The first phase, expansion, is characterized by an increase in economic activity and above-average economic growth. In this phase, the production of goods rises and unemployment falls. Credit is available because banks believe businesses and people will be able to repay their loans. Available credit means lower interest rates, which fuels expansion, resulting in more jobs. All of this indicates an increasing demand for money.

As the economy reaches full employment, it hits a maximum point of economic activity