The American economy over the last 8-10 years has set many records. We have achieved the lowest unemployment numbers we ve seen in at least 30 years, record-breaking productivity levels and amazing GDP growth rates. What we haven t seen is that pesky inflation, but many fear with American s increasing wages brought on by low unemployment, that we can t contain it much longer. The contraction phase is a different matter. In general, its characteristics are the exact opposite of an expansion.
Contractions get a bad rap because they are much more obvious than the expansion.
You may not notice an expansion s inflation right away, but if you lose your job, the contraction hits home pretty quickly. The government can use taxing and government spending wisely to correct these situations. In an expansion, people or consumers are generally spending too much money. The government can employ contractionary fiscal policy , which increases tax rates so that consumers no longer have that disposable income to spend each month. If you give more to the government, it must mean that you can t spend as much on yourself.