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a) Recession period
For any given period the level of expenditure or aggregate demand may not be sufficient to
secure full employment of labour and other factors of production. When this happens expansionary economic policies must be made to stimulate the economy e.g. increase
government expenditure and reduce taxes. The supply of more money for use in demand
increases production (output) hence rise in employment.
b) Boom period
When aggregate demand is greater than aggregate supply (level of output) employment level
is high in boom period and inflationary pressure is also high. When this happens, restrictive economic policies must be employed. Reduce in government expenditure and increase in taxation leads to a decrease in purchasing power resulting in fall in
effective aggregate demand.
NatalieR answered the question on June 21, 2022 at 07:35
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