What is the main goal of policymakers in regards to the business cycle?

a. to limit the volatility of the business cycle by reducing the size of both recessions and booms

b. to allow recessions to self-correct while actively preventing booms from growing into bubbles

c. to mitigate recessions while allowing economic booms to run their course

d. to increase the magnitude of both recessions and booms since the net result is higher economic growth

e. to maximize growth by fighting recessions and promoting economic booms

The correct answer is (A) To limit the volatility of the business cycle by reducing the size of both recessions and booms.

When the economy is in recession, policymakers pursue expansionary monetary or fiscal policy to ensure that the recession is not deep or the economy does not slip into depression. Similarly, when there is strong economic growth and the economy is operating above potential output, the policymakers pursue contractionary monetary policy to ensure that inflation is curbed and to prevent bubbles in the economic or financial system. Therefore, policymakers work toward limiting the volatility of business cycles during a recession or boom. If policymakers were to just focus on recession and allow economic booms to run their course, there would be no contractionary fiscal or monetary policy in force.