Business Cycle
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Exercise 1.
Write a brief description, based on what you see in the charts above, of the following phases of the business cycle:
- Trough:
- Expansion:
- Peak:
- Recession:
Exercise 2.
Review the information on the business cycle, then complete the chart below describing conditions in the phase of the business cycle. For example, “Housing Construction.” What happens to housing construction during an expansion? Does it increase or decline? That’s what you need to describe.
Explanation of Four Phases of Business Cycle
Prosperity Phase: When there is an expansion of output, income, employment, prices and profits, there is also a rise in the standard of living. This period is termed as ‘prosperity phase’.
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.
- Overall business optimism.
- A high level of MEC (Marginal Efficiency of Capital) and investment.
Due to full employment of resources, the level of production is maximum and there is a rise in GNP (Gross National Product). Due to high level of economic activity, it causes a rise in prices and profits. There is an upswing and the economic activity and economy reaches its Peak. This is also called a Boom Period.
(Chart to be filled out is below)
| Phases | of Business | Cycle | ||
| INDICATOR | Trough | Expansion | Peak | Recession |
|---|---|---|---|---|
| Interest Rate | ||||
| Stock Price | ||||
| Consumer Confidence | ||||
| Business Profits | ||||
| Consumer Spending | ||||
| Industrial Production | ||||
| Housing Construction | ||||
| Business Investment |
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