The Phases of the Economic Business Cycle (Coursework Sample)
The U.S. economy recovered from the recession quicker than every country except Germany, according to a report released by the WH economic team in 2016. The report offers a comprehensive look at the progress made since the economic crisis of 2007-08, which marked the worst recession since the Great Depression. You will need to consider answers to these questions in the essay. a. What is the business cycle? Define each of the phases of the economic business cycle. b. What is the difference between a recession and a depression? c. Are there known causes and cures for the economic business cycle? d. How did a crisis in the American housing market threaten to drag down the entire global economy? e. What did it take for U.S. economy to recover and put the economy back on track?source..
The Phases of the Economic Business Cycle
What is the business cycle? Define each of the phases of the economic business cycle
A business or economic cycle is a recurrent sequence of changes that consists of several phases, i.e., the expansion, peak, recession, and trough. The expansion phase is a healthy economic period where the aggregate demand is high as people are comfortable spending money. According to Ali Hussain (2020), this is an 'up' period where civilians receive increased wages and good working conditions. The second phase is known as the peak stage. Here the economy has reached its climax as there is a significant increase in prices of goods, yet the value does not match this increase. This reckless behavior leads to the third phase in the economic cycle, which is the recession or contraction stage. Here, businesses start to incur losses leading to the cutting off of their employees. Unemployment is a considerable hindrance from spending, thus the fall in economic growth. As the last phase in the economic cycle, the trough is also the cycle's lowest point, allowing a rebound. However, the cycle rebound does not happen swiftly. Over time, there is a significant global growth trend in the economy.
What is the difference between a recession and a depression?
In addition, it is essential to note the difference between a recession and a depression in the business cycle. To know the difference between the two terms in economics, one has to measure the following factors: the severity, duration, and overall impact CITATION Ste20 \l 1033 (Ashe, 2020). Depression is very severe as it causes extreme damage to the overall economy since it lasts for several years. During this period, there were high unemployment rates and little to no aggregate demand. There has only been one such case, that is, the great depression which lasted from 1929 to 1939, hence causing global impact. On the other hand, a recession lasts for a few months, primarily impacts the country in question, and is less severe than depression.
Are there known causes and cures for the economic business cycle?
The business cycle is caused by the forces of supply and demand CITATION Kim20 \t \l 1033 (Amadeo, 2020). The monetary and fiscal policies change the business cycle, as discussed below. The monetary policy depicts how the Central Bank manages the economic process. To start with, during the expansion stage, the bank creates a healthy and expected inflation rate, and according to CITATION Kim20 \t \l 1033 Amadeo (2020), the federal reserve in the United States maintains the fund's rate at 2%. Interest rates increase in the peak stage, but in several instances, the bank sells its assets and treasury bonds to avoid the irrationality that comes in the peak stage. In the contraction period, assets are overvalued, but the central bank buys treasuries and lowers interest rates. Lastly, the Central banks pull out all the tools to recover the economy out of a trough. For example, in 2008, the Fed used a variety of innovative tools to keeps banks from collapsing CITATION Kim20 \t \l 1033 (Amadeo, 2020). Moreover, the fiscal policy depicts how politicians save the business cycle, which is relatively complex as they never agree.
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