Business Cycles
Business cycles are the "ups and downs" in economic activity, defined in terms of periods of expansion or recession. “Business cycles occur because disturbances to the economy of one sort or another push the economy above or below full employment. Inflationary booms can be generated by surges in private or public spending (Roomer, Christina D).” The phases of the business cycle are Prosperity Phase: Expansion or Boom, where an increase in production and prices occurs, and lower the interest rates. Recession Phase: from prosperity to recession, where produces a fall in prices and activity with an increase in unemployment and interest rates. Depression Phase: Contraction of economic, which usually begins by capital markets running into bank and corporate failures. Recovery Phase: from depression to prosperity (lower turning Point), which begins when the shares recover from falls in prices and income.
The Prosperity phase of a Business cycle is the highest point in the economic. It is also called the peak. At this point in the economy’s full employment, i.e., all persons in employment and production is at its highest level. Since no labor or production capacity remaining, there is no further economic growth. “The features of prosperity are high level of output and trade, high level of effective demand, high level of income and employment, rising interest rates, Inflation, Large expansion of bank credit, business optimism and high level of MEC (Marginal efficiency of capital) and investment (Brian Bass).” The level of production is maximum and there is a rise in GNP (Gross National Product). On the other hand, Recession phase is where economic activity becomes slower. At this stage production, investment, trade and...
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... decreases (fluctuations) of recurrent global economic activity (in most economic sectors) in a given period. These are not presented in the same way in different periods, as their intensity, duration or behavior may vary, but all are characterized by rising and falling phases.
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In conclusion, regardless of Macropoland’s current economic condition, it is fair to say that it is all part of the business cycle. The business cycle has three parts: peak, trough, and peak. The peak is the date that the recession starts. In Macropoland’s case, the peak would be at the beginning of 1973, its trough somewhere between 1973 and 1974, and then its peak again at 1974. In the second scenario, Macropoland is either at its trough, where it is about to head up again because of its low inflation rate, or it is at its expansion, on its way to heading to its next peak.
What is the difference between a.. What should MCI do now? BIBLIOGRAPHY Author not named (2002), Assessing a Firm's Future Financial Health, Harvard Business School Publishing. Stein, J. (1992)
In conclusion, the current macroeconomic situation in the United States is characterized by moderate growth because of better economic conditions that were brought by the events of 2013. The country has experienced moderate economic growth since the 2008 global recession but has shown real signs of momentum. While the country is not concerned about recession or inflation, the rate of unemployment is still a major challenge despite improved consumer and business confidence. As a result, the Federal Open Market Committee or Federal Reserve System needs to adopt fiscal and monetary policy initiatives that help address the unemployment issue and promote high economic growth.
Every few years, countries experience an economic decline which is commonly referred to as a recession. In recent years the U.S. has been faced with overcoming the most devastating global economic hardships since the Great Depression. This period “a period of declining GDP, accompanied by lower real income and higher unemployment” has been referred to as the Great Recession (McConnell, 2012 p.G-30). This paper will cover the issues which led to the recession, discuss the strategies taken by the Government and Federal Reserve to alleviate the crisis, and look at the future outlook of the U.S. economy. By examining the nation’s economic struggles during this time period (2007-2009), it will conclude that the current macroeconomic situation deals with unemployment, which is a direct result of the recession.
Knoop, A, T, 2011, Recessions and depressions: understanding business cycles, ABC-CLIO, United States of America
In economics, a recession occurs when there is a slowdown in the spending of goods and services in the market. A recession causes a drop in employment, GDP growth, investment, as well as societal well-being. All recessions are caused by a specific cause, but the Great Recession of 2007-2009 was caused by a crash in the housing market. This crash was triggered by a steep decline in housing prices. All of a sudden, people bought houses because there was an excessive amount of money in the economy and they thought the price of houses would only increase. (Amadeo, 2012). There was a financial frenzy as the growing desire for homes expanded. People held a lot of faith in the economy and began spending irrationally on houses that they couldn’t afford. This led to overvalued estate and unsustainable mortgage debt. (McConnell, Brue, Flynn, 2012).
New York Times, p. 1. http://www.nytimes.com/2009/09/09/business/economy/09leonhardt.html?_r=1 Lipman, Marc. A. A. Personal Interview. March 21, 2010. Marano, Hara E. (2004).
Global recessions of 1975, 1982, 1991 and 2009 have questioned economists of the specific era to provide the causes of these recessions along with steps to avoid them. IMF considers global recession as “A decline in annual per capita real World GDP (purchasing power parity weighted), backed up by a decline or worsening for one or more of the seven other global macroeconomic indicators: Industrial production, trade, capital flows, oil consumption, unemployment rate, per capita investment, and per capita consumption” (World Economic and Financial Surveys). A recession therefore affects all the countries dependent on an economy undergoing recession. Since decades economists are trying to draft possible measures that an economy can take to avoid recession or to get out of a recession. Constant debates, on which approach an economy should take to get out of recession, have never reached to any conclusion. Mainly there are three schools of thought in economics that emerged during and after recession i.e. classical, monetarist and Keynesian. No school of thought has yet provided a perfect solution as the approaches by these three schools have many pros and cons. However, many economists believe that Keynesian is a more suitable approach for getting an economy out of recession. Although Keynesian approach have policy lags and can cause high inflation, however, Keynesian tools’ expansionary fiscal policy, expansionary monetary policy and revaluation of currency are very effective in increasing GDP ultimately pulling an economy out of recession.
“Microeconomics and macroeconomics can be described in terms of small-scale vs. large-scale or in terms of partial vs. general equilibrium. Perhaps the most important distinction, however, is in terms of the role of equilibrium. While issues in microeconomics seldom challenge the notion of a naturally occurring equilibrium, the existence of business cycles and, especially, unemployment suggests too many observers that macroeconomics raises issues of a different character.” (McConnell & Brue, 2004).
Money supply is the availability of money in the hands of the public (economy) that can be used to purchase goods, services and securities. In macroeconomics, the price of money is equivalent to the rate of interest. There's an inverse relationship between money supply and interest rates. As money supply increases, interest will decrease. On the other hand, interest will increases as money supply decreases. It is very important to understand that the economy works at market equilibrium. There are several factors affecting money supply; and these contributing factors will be the main focus of this paper. Understanding the basic principle on money supply is imperative to have a good grasp on the macroeconomic impact of money supply on business operations.
As a result of this economic growth families will begin to feel more confident and will begin to spend more of their money instead of saving it because they believe that will receive a pay raise or will find a better job. (Amadeo, 2016) Borrowing also increases when economic activity is high people begin to borrow from banks and other places because they feel that the government has been doing a great job managing the economy. (Amadeo, 2016) As we have seen in 2008 people should never get to confident in the economy because our economic bubbles are used to crashing when they are doing very well and it’s never really the people’s fault it’s the governments. Although inflation begins to rise when the economy is doing great one of the things that is known to bring prices down is competition among businesses. Competition is great because one company will attempt to sell a product for a cheaper price than another company which results in lower prices the same as you see with cell phones and automobiles. Higher prices can also be caused by technological innovations when people are expecting a new product the producer can sell it for a higher price because they know that consumers will spend almost any amont of money to obtain that product. (Amadeo, 2016) Higher demand for new products will increase employment to meet those demands and inflation will rise which will benefit the economy tremendously. Whenever the price level increases, spending must also increase to be able to buy the same amount of goods and
In December 2007 The National Bureau of Economic Research (CNN) said that the United States of America had fallen into a recession. The recession meant that people were loosing jobs and that people were spending too much money and even money that they did not have. A major reason that the United States fell into the recession was because banks and private businesses were giving credit to people who could not afford to pay back or had a bad credit to begin with. This was a major problem to all types of busin...
This Paper examines and compares various forecasting techniques used for qualitative and quantitative business forecasting and their use in Firstlogic Inc., to forecast the demand under conditions of uncertainty. Time series and Delphi forecasting methods are considered for this research to evaluate their ability to make effective decisions regarding the future.