Courses : Intermediate Macroeconomics Lecturer : Frischa Adellia Semester : 4th Semester, 2022/2023 Sesion Expansion Phase The expansion phase or growth phase is the phase when the economy grows and develops. In this phase, there is an increase in production, demand, investment, and employment. On the other hand, prices and interest rates tend to rise, and the unemployment rate decreases. The expansion phase usually occurs after the economy comes out of a recession or depression. Increased demand will encourage producers to increase production, thereby expanding employment opportunities and reducing the unemployment rate. In this phase, consumers and investors tend to be more optimistic about the future, thereby increasing confidence and positive sentiment in the market. However, during this expansion phase, there is potential for inflation or price increases. The increase in demand will push up the price of goods and services, especially if production is still unable to keep pace with the increased demand. Therefore, in the expansion phase, the government and the central bank usually try to keep inflation from getting too high by adjusting interest rates and appropriate fiscal policies. After the depression phase, the economy then entered the expansion phase. In this phase, economic activity begins to improve and shows signs of growth. Some indicators that can describe the expansion phase include: 1. Increase in GDP (Gross Domestic Product) or GDP (Gross Domestic Product) GDP or GDP is the main indicator of economic growth that measures the total value of the production of goods and services in a country during a certain period. In the expansion phase, GDP or GDP usually increases. 2. Decreased unemployment rate In the expansion phase, economic actors such as companies and consumers start spending money to buy goods and services. This makes companies need to add workers to meet increased demand, so that the unemployment rate can decrease. 3. Increasing investment and demand Due to the increase in income and the belief that the economy would continue to improve, companies began to invest in production and infrastructure. Demand for goods and services is also increasing, driving increased production and economic growth. 4. Increase in prices and interest rates An increase in demand for goods and services causes prices to rise, and increased investment drives up interest rates. This aims to restrain inflation and prevent overheating of the economy. The expansion phase can last for several years, depending on various factors such as economic policies, changes in the business environment, and political turmoil. However, eventually, the expansion phase will reach its peak and enter the contraction phase. In the expansion phase, the economy grows rapidly and tends to increase in economic indicators such as production, investment, and job availability. On the other hand, inflation tends to be stable or increase slowly. In this phase, people feel optimistic about economic conditions, so they tend to increase consumption and investment. Therefore, aggregate demand tends to increase and results in an increase in output and national income. The expansion phase is usually caused by fiscal or monetary stimulus, which increases aggregate demand. This increase in aggregate demand was responded by producers by increasing their production, which then increased output and national income. Increased investment can also occur in the expansion phase as companies tend to see a bright future and may expect continued growth in the future. However, during the expansion phase there is also the risk of overheating or too fast economic growth which could lead to a significant rise in inflation. When rising inflation becomes too high, central banks tend to raise interest rates to reduce aggregate demand and prevent further inflation. This can lead to a slowdown in economic growth or even a recession. Therefore, the expansionary phase must also be balanced with appropriate economic policies and vigilance against rising inflation risks. The expansion phase in the business cycle is often thought of as a period when the economy is experiencing rapid growth and improving. In this phase, the economy begins to recover from the recession and its growth increases significantly. The main indicators of the expansion phase are: 1. Economic growth: GDP will start growing at a faster rate and show positive growth. This shows that the production of goods and services is increasing. 2. Rising unemployment rate: As production increases, firms need more labor to meet demand. This leads to a decrease in the unemployment rate and pushes wages up. 3. Increased consumption and investment: Increased production and decreased unemployment will increase consumers' incomes and increase their confidence in the economy. This encourages higher consumption and investment. 4. Increasing inflation: As demand for goods and services increases, prices tend to increase because supply is not sufficient to meet demand. This leads to rising inflation. The expansion phase is usually a positive time for the economy and many businesses will experience significant growth during this period. However, as demand starts to increase, companies will also need to pay attention to inflation issues and may need to adjust their business strategy to meet the challenge.