Final answer:
The problem of cyclical asymmetry suggests that expansionary monetary policy may not achieve a contraction of the money supply during a downturn, while it can force an expansion.option a.
Step-by-step explanation:
The problem of cyclical asymmetry suggests that an expansionary monetary policy can force an expansion of the money supply, but a restrictive policy may not achieve a contraction. This means that when the economy is in an upswing, it is easier for the monetary authorities to stimulate economic growth by increasing the money supply. However, during a downturn, it is more difficult for restrictive policies to effectively decrease the money supply and control inflation. This asymmetry exists due to factors such as banks choosing to hold excess reserves and businesses and consumers being reluctant to borrow during recessions.
For example, during a recession, banks may be concerned about the deteriorating economy and choose to hold excess reserves above the required level. In this case, the central bank cannot force individual banks to make loans, limiting the impact of expansionary monetary policies. Similarly, businesses and consumers may be hesitant to borrow money during a recession due to the insecurity of sales and jobs, which further reduces the effectiveness of expansionary policies.
In summary, the problem of cyclical asymmetry highlights the challenges faced by monetary authorities in stimulating economic growth during downturns, compared to the relative ease of tightening policies during upswings.