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    Role of Fiscal Policy in Business Cycles

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    How should fiscal policy be used to counter business cycles?

    © BrainMass Inc. brainmass.com October 10, 2019, 4:40 am ad1c9bdddf

    Solution Preview

    Any economy may experience contraction, expansion, or peak level. Government spending and taxation power can be used to promote economic stability.

    During a slowdown of economic activity (contraction), governments can reduce taxes and lower interest rates. In this case, people's disposable income will increase which as a result, will stimulate consumer spending. In this case, slowdown of the economy may be prevented. A provision of subsidies and incentives in this period to consumers and businesses may also be ...

    Solution Summary

    The solution discusses the role of fiscal policy in minimizing the negative impact of business cycles.