Every nation’s economy fluctuates between periods of expansion and contraction These changes are caused by levels of employment, productivity, and the total demand for and supply of the nation’s goods and services
What causes the economic cycle?
The business cycle is caused by the forces of supply and demand—the movement of the gross domestic product GDP—the availability of capital, and expectations about the future You may hear this series referred to as the economic or trade cycle
What are cycles in the economy?
An economic cycle is the overall state of the economy as it goes through four stages in a cyclical pattern The four stages of the cycle are expansion, peak, contraction, and trough Factors such as GDP, interest rates, total employment, and consumer spending, can help determine the current stage of the economic cycle
What factors affect the business cycle?
main factors contribute to changes in the business cycle: business decisions; interest rates; consumer expectations; and external issues When businesses increase production, they increase aggregate supply and help fuel an expansion When they decrease production, supply decreases and a contraction may result
How do business cycles affect the economy?
A business cycle is the periodic growth and decline of a nation’s economy, measured mainly by its GDP Governments try to manage business cycles by spending, raising or lowering taxes, and adjusting interest rates Business cycles can affect individuals in a number of ways, from job-hunting to investing
What are the 5 causes of the business cycle?
Causes of the business cycle Interest rates Changes in the interest rate affect consumer spending and economic growth Changes in house prices Consumer and business confidence Multiplier effect Accelerator effect Lending/finance cycle Inventory cycle Real business cycle theories
What are the 3 main indicators of the business cycle?
The Conference Board, a global business research association, identifies three main classes of business cycle indicators, based on timing: leading, lagging and coincident indicators
What are the causes and consequences of business cycles?
Let us take a look at the internal causes of business cycles 1] Changes in Demand Browse more Topics under Business Cycles 2] Fluctuations in Investments 3] Macroeconomic Policies 4] Supply of Money 1] Wars 2] Technology Shocks 3] Natural Factors
What are the 4 factors of production and explain each one?
The factors of production are resources that are the building blocks of the economy; they are what people use to produce goods and services Economists divide the factors of production into four categories: land, labor, capital, and entrepreneurship This includes not just land, but anything that comes from the land
What is the purpose of business cycle?
The purpose of a business cycle is to track economic activity In practical terms, the business cycle tracks the state of an economy from expansion to contraction and recession It can affect how you spend, how you invest, and how you access credit
What are the four factors that cause changes in the business cycle?
Variables affecting the business cycle include marketing, finances, competition and time
Why do trade cycle occur briefly explain all the reasons?
Hawtrey believes that expansion and contraction of money are the basic causes of trade cycle Money supply changes due to changes in rates of interest When rate of interest is reduced by banks, entrepreneurs will borrow more and invest This causes an increase in money supply and rise in price leading to expansion
What causes a peak in the business cycle?
An expansion is characterized by increasing employment, economic growth, and upward pressure on prices A peak is the highest point of the business cycle, when the economy is producing at maximum allowable output, employment is at or above full employment, and inflationary pressures on prices are evident
How is unemployment caused?
During an economic downturn, a shortfall of demand for goods and services results in a lack of jobs being available for those who want to work Businesses experiencing weaker demand might reduce the amount of people they employ by laying off existing workers, or hiring fewer new workers
What are the main causes of expansion and contraction of the business cycle?
Customer demand grows during booms and shrinks during recessions, causing business expansion and contraction
What are two ways governments influence business cycles?
The government has two tools at its disposal to moderate the short-term fluctuations of the business cycle—fiscal policy or monetary policy Fiscal policy refers to changes in the budget deficit Monetary policy refers to changes in short-term interest rates by the Federal Reserve
What are the 5 phases of economic development?
Unlike the stages of economic growth (which were proposed in 1960 by economist Walt Rostow as five basic stages: traditional society, preconditions for take-off, take-off, drive to maturity, and age of high mass consumption), there exists no clear definition for the stages of economic development
Why is it difficult to explain the causes of business cycles?
Business cycles are caused by the forces of demand and supply and the availability of capital and national income It is difficult to explain the causes of business cycles because it is hard to predict supply and demand forces and any prediction would not be accurate
What are the 5 stages of economic development?
Stages of Economic Development: (1) The Traditional Society: (2) The Pre-conditions to Take-off: (3) The “Take off” Period: (4) Drive to Maturity: (5) The Age of High Mass Consumption:
What are the three major types of unemployment what are their causes?
There are three main types of unemployment: cyclical, frictional and structural Cyclical unemployment occurs because of the ups and downs of the economy over time When the economy enters a recession, many of the jobs lost are considered cyclical unemployment
What causes inflation?
Inflation is a measure of the rate of rising prices of goods and services in an economy Inflation can occur when prices rise due to increases in production costs, such as raw materials and wages A surge in demand for products and services can cause inflation as consumers are willing to pay more for the product
What are four requirements for economic growth?
Economic growth only comes from increasing the quality and quantity of the factors of production, which consist of four broad types: land, labor, capital, and entrepreneurship The factors of production are the resources used in creating or manufacturing a good or service in an economy