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Business Cycles And The Factors In Our Market That Affect These Cycles

5598 words - 22 pages

Business Cycles are WHACKAccording to Todd N Lebor, "Business cycles are about as easy to nail down as a grasshopper on amphetamines." Business cycles, in other words, can be referred to as the mood swings of an economy. A business cycle defines the various contractions and expansions that occur in the economy. Macroeconomics, or the study of the economy as a whole, deals with certain things such as aggregate (total) supply and demand and GDP. The GDP (gross domestic product) is a total market value of all goods and services produced within an economy in a given period of time. When the GDP increases, it can be concluded that our economy may be improving or expanding, while during times of decreasing GDP, our economy may be declining and contracting. There are four different phases included in this fairly unpredictable cycle. These indicators include a peak, a recovery, a recession, and a depression. A peak usually relates to the period of time between an expansion and the decline of the economy. The peak is basically the point of maximum production and efficiency of the economy, which has both benefits and costs. Although the peak seems to be desirable, it is the main indication that our economy is heading into a decline and most economists prefer not to hit this point. A recovery in the business cycle is a point in which the expansion of the economy has just begun. Many different factors in the economy are beginning to rise and fall slowly, which indicates that the economy is slowly improving. Unemployment will start to gradually fall while production in the economy will increase. A recession indicates that the economy is in a contraction phase, in which the economic activity is decreasing. Unemployment rate will rise significantly and production will usually fall. A depression is usually a period of time in which many changes are taking place, but the economic growth is usually still declining. A depression usually has higher unemployment and lower production than a regular recession. A depression usually lasts much longer than a recession. These are the four major phases of a business cycle. The business cycle is not completely unpredictable, however. There are certain indicators that can tell consumers where the economy is heading, what the economy is doing right now, or where the economy was recently. These indicators are said to be leading (where the economy is heading in a minimum of three months), coinciding (where is economy is at the moment, these indicators rise and fall with the economy), and lagging (certain factors that will rise or fall a couple months after an economic contraction or expansion). When these indicators display that the economy is in a recession or depression, the government and Federal Reserve board takes certain actions in order to stimulate economic activity. These different actions are known as the monetary and fiscal policies. The government might take actions such as decreasing taxes and increasing government...

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