How might the expansionary phase of trade cycle affect the inflationary pressure?

Answer 1

The expansionary phase of a trade cycle is characterized by an increase in economic activity, production, employment, and income. During this phase, demand for goods and services increases, which in turn can put upward pressure on prices. Increased demand can also lead to higher wages and production costs, which can further fuel inflation.

As businesses try to keep up with rising demand, they may increase their prices to maximize profits. The availability of credit and the low-interest rates during the expansionary phase can also contribute to inflationary pressures by increasing spending and investment.

Overall, the expansionary phase of a trade cycle can have a significant impact on inflationary pressures, especially if the growth in demand is not matched by an increase in supply. Governments and central banks often take measures to control inflation during this phase by adjusting interest rates, tightening credit conditions, and implementing fiscal policies that curb excess demand.