Finance, Forex and Investments - How central bank to control the inflation of the economy in period of boom and recession?

How central bank to control the inflation of the economy in period of boom and recession?

The Fed (Federal Reserve, the central bank of the US) or the central bank of any country uses monetary policy to control the "speed" of the economy....either through contractionary or expansionary policy. When the economy is in a recession, the central bank will decrease interest rates in order to promote more consumer spending and business investments, which in turn will increase the aggregate demand of an economy (theoretically, anyway). It can raise interest rates to slow down an economy, and, per the question you have asked, this would have the effect of reducing inflation (however, this method would also cause an increase in unemployment). Whenever you use fiscal and monetary policy, you will always have a trade-off between inflation and unemployment. The solution to this would be to implement supply-side economics.