Notes on Business Cycles.
Composition and Features of Business Cycles.
Business cycles are like the heartbeat of the economy, going through regular ups and
downs.
They have four parts:
-Good times (expansion)
-Best time (peak)
-Bad times (contraction)
-Worst time (trough)
When things get better from bad times, it's called an upturn.
- Expansion:During an expansion, the economy grows. That means more people have jobs,
and they're earning more money. With more money in their pockets, people tend to spend
more. Businesses also invest more because they're optimistic about the future. For example,
during an expansion, you might see new businesses opening up, more houses being built,
and people buying more cars and electronics.
- *Peak: The peak is the highest point of the cycle. At this time, the economy is doing really
well. Many businesses are making big profits, and there are lots of job opportunities for
people. For instance, during a peak, you might notice that housing prices are at their highest,
and companies are reporting record profits.
- Contraction: After reaching a peak, the economy starts to slow down, entering a contraction
phase. This means fewer jobs are available, and people are not spending as much money.
Businesses might cut back on production, leading to layoffs and reduced spending. For
example, during a contraction, you might see stores offering discounts to attract customers,
and companies delaying expansion plans.
- Trough: The trough is the lowest point of the cycle. At this stage, the economy is struggling,
and many people are out of work. It's a tough time for businesses, as they're not making as
much money as before. However, the trough also marks the beginning of recovery, as the
economy starts to pick up again. For instance, during a trough, you might see governments
introducing stimulus measures to boost the economy, such as tax cuts or infrastructure
spending.
Exogenous and Endogenous Factors:
Business cycles are influenced by both external (exogenous) and internal (endogenous)
factors.
- Exogenous Factors:These are things that happen outside the economy and can't be
controlled, like natural disasters or wars. For example, if a hurricane destroys a major city, it
can disrupt businesses and cause a downturn in the economy.
- Endogenous Factors:These are things that happen within the economy itself, like changes
in consumer spending or government policies. For instance, if people start saving more and
spending less, it can slow down economic growth.
Changes in Business Cycles:
