answersLogoWhite

0


Best Answer

Answer It is very important that you understand that the Federal Reserve is not a government institution. It does not take its orders from the federal government. Yes, they put their hand in and try to change the course of the U.S. Economy, but you have to ask yourself, Who are they? What are they trying to do? Who are they trying to help when they do it? Answer Business cycles are the ups and downs in business as defined by a time span. This span could be days, weeks, months, years, decades, even centuries. Generally, the cycle depends on the type of business. For instance, construction business usually slows dramatically in the winter months, as it is not practical to build things while it is snowing and cold. Also, financial markets undergo some turmoil around tax season as people try to settle their accounts for their taxes. One can measure the overall economy as having cycles of growth and slow down by the GDP or some other economic indicator.

There are many schools of thought on how the Government (including the Fed) should use this information. Some say that the government should just let the cycles happen as they may, keeping their hands off (laisse-faire). Others go to the other extreme, saying that government should control the cycles completely. Most economics fall in the middle, opting for an indirect approach, saying that the business cycles simple should be "smoothed out."

One could easily see why the dips in business activity would want to be smoothed out and how the gov't would do that (lowering interest rates and taxes, etc). But why would the gov't want the economic booms to be not as boomful? The answer is because during times of hightened business activity, there is a huge risk of demand-pull inflation. The gov't then wants to raise interest rates and taxes so that the economy doesn't get "too hot" and cause this problem.

User Avatar

Wiki User

8y ago
This answer is:
User Avatar

Add your answer:

Earn +20 pts
Q: What are business cycles and what role do the Federal Reserve and Federal Government have in trying to control them?
Write your answer...
Submit
Still have questions?
magnify glass
imp
Related questions

Do you control your money when you declare bankruptcy?

The Federal Reserve controls the money in the United States. The Federal Reserve is a private company not associated with the government.


What government agency is responsible for the control of money supply?

The Treasury


What entities in the Federal Reserve System control the discount rate?

The Board of Governors in the Federal Reserve System control the discount rate.


The fractional reserve system allows the federal reserve to?

control state banks


What did the Wilson administration establish in an effort to assert government control over the nations banking system?

created the federal reserve system


How did president Wilson and congress assert government control over the nations banking system?

They founded what is now called the Federal Reserve system.


In an effort to assert government control over the nations banking sytem Wilson and progressive members of congress?

created the federal reserve system


The federal reserve board has substantial influence or control over?

wages for federal employess


What does Congress create to control economic activity?

The Federal Reserve


What bank other than the current Federal Reserve Banking System was given power by the government to control the US economy?

Bank of China. (CBC)


Should the federal reserve control the money supply?

Because banks are the financial intermediaries of the economy. If banks operate in an unsupervised manner they might cause economic chaos and uncertainty in the country. That is why the Federal Reserve regulates the banks to ensure that customers are protected and the country's economy is safeguarded.


Which of these is primarily responsible for the control of the money supply in the US?

The Federal Reserve