In everyday society, companies are affected by the economy. The company either suffers or benefits depending on what kind of economy it is. This will depend on what kind of company it is, and what kind of market the business does well in. The Business Cycle is what determines this factor. It is a term used in economics to designate changes in the economy.
Timing of the business cycle is not predictable, but its phases seem to be. Many economists site four phases—prosperity, liquidation, depression, and recovery. During a period of prosperity, a rise in production leads to increases in employment, wages, and profits. Obstacles then begin to obstruct further expansion. Production costs can increase, helping create a rise in prices, and consumers buy less. Inventories accumulate, causing price declines. Manufacturers begin to diminish; workers are laid off. Such factors lead to a period of liquidation, and money is hoarded, not invested. Production cutbacks and factory shutdowns occur. Unemployment becomes widespread. A depression is in progress. Recovery may be initiated by a reawakening in consumer demand or government action to stimulate the economy. Prices rise more rapidly than costs. Employment increases, and people buy more. Investment expands. A new cycle is under way. (msnencarta.com)
(http://www.keystone-web.com/buscycle.html)
Business cycles do not always behave as neatly as the model just given, and no two cycles are alike. Apart from the traditional business cycl...
The economic business cycle of the world is its own living and breathing entity expanding and contracting with imprecise balances involving supply and demand. The expansions and contractions also known as booms and recessions support a delicate equilibrium of checks and balances, employment and unemployment. The year 1929 marked the beginning of the downward spiral of this delicate economic balance known as The Great Depression of the United States of America. The Great Depression is by far the most significant economic event that occurred during the twentieth century making other depressions pale in comparison. As a result, it placed the world’s political and economic systems into a complete loss of credibility. What transforms an ordinary recession or business cycle into an authentic depression is a matter of dispute, which caused trepidation among economic theorists. Some claim the depression was the result of an extraordinary succession of errors in monetary procedure. Historians stress structural factors such as massive bank failures and the stock market crash; economists hold responsible monetary factors such as the Federal Reserve’s actions when they contracted the currency distribution, and Britain's attempt to return their Gold Standard to pre-World War parities. Subsequently, there are the theorists such as the monetarists, who presume that it began as a normal recession, however many policy errors by the monetary establishment forced a reduction in the money supply, which worsened the economic condition, thereby turning the normal recession into the Great Depression. Others speculate that it was a failure of the free market or a failure of the government in their efforts to regulate interest rates, slow the occ...
The United States has been through many recessions in its history, but I have chosen to focus on the recession of 2001. This recession only lasted from the months of March through November of 2001, but many things happened to our economy during these eight months of hardships, including one of the most traumatizing events in the United States of America’s history. “A recession is a significant decline in activity spread across the economy, lasting more than a few months, visible in industrial production, employment, real income, and wholesale-retail trade. A recession begins just after the economy reaches a peak of activity and ends as the economy reaches its trough.” (NBER) Not only did the United States experience a recession, but it was also the year our country went under an attack brought onto the World Trade Center, and this shook our nation up even more than an average event might. March 2001 ended a ten year expansion, and led to an eight month downfall of our economy, also known as the 2001 recession.
The downturn began slowly and almost unnoticeably. After 1927, consumer spending declined and housing construction slowed. Inventories piled up, and in1928 and 1929 manufacturers began to cut back on production and lay off workers. Reduced income and buying power in turn reinforced the downturn. By the summer of 1929 the economy was clearly in a recession.
The Bureau of Labor Statistics characterizes a recession as a general slowdown in economic activity, a downturn in the business cycle, and a reduction in the amount of goods and services produced and sold. But what usually causes this slowdown to begin with? Each recession has its own specific causes, but all of them are usually preceded by a period of irrational exuberance which is part of the expansion phase of the business cycle. The most recent one, which officially lasted from December 2007 to June 2009, produced the greatest US labor-market meltdown since the Great Depression. This Great Recession began with the bursting of an 8 trillion dollar housing bubble. Irrational exuberance in the housing market led many people to buy houses they couldn’t afford because the thought was that housing prices could only go up. The bubble burst in 2006 as housing prices started to decline, threw many homeowners off guard, who had taken loans with little money down. When the realization set in that they would lose money by selling the house for less than their mortgage, they foreclosed. This triggered an enormous foreclosure rate which caused many banks and hedge funds to panic after realizing the looming huge losses due to the buying of mortgage-backed securities on the secondary market. By August 2007, banks were afraid to lend to one another because they did not want these toxic loans as collateral. This led to the $700 billion bailout, and bankruptcies or government nationalization of Bear Stearns, AIG, Fannie Mae, Freddie Mac, IndyMac Bank, and Washington Mutual. Consumer spending experienced sharp cutbacks due to the resulting loss of wealth. The combination of this along with the financial market chaos elicited by the bursting of th...
The Great Recession was a resulting loss of wealth that led to sharp cutbacks in consumer spending. This loss of consumption, combined with the financial market chaos led to a collapse in business investment. Massive job loss followed as consumer spending and business investment dried
In economics, a recession occurs when there is a slowdown in the spending of goods and services in the market. A recession causes a drop in employment, GDP growth, investment, as well as societal well-being. All recessions are caused by a specific cause, but the Great Recession of 2007-2009 was caused by a crash in the housing market. This crash was triggered by a steep decline in housing prices. All of a sudden, people bought houses because there was an excessive amount of money in the economy and they thought the price of houses would only increase. (Amadeo, 2012). There was a financial frenzy as the growing desire for homes expanded. People held a lot of faith in the economy and began spending irrationally on houses that they couldn’t afford. This led to overvalued estate and unsustainable mortgage debt. (McConnell, Brue, Flynn, 2012).
Over the past five years the Australian economy has gone through many changes experiencing both the peaks and troughs associated with business cycle.
In conclusion, regardless of Macropoland’s current economic condition, it is fair to say that it is all part of the business cycle. The business cycle has three parts: peak, trough, and peak. The peak is the date that the recession starts. In Macropoland’s case, the peak would be at the beginning of 1973, its trough somewhere between 1973 and 1974, and then its peak again at 1974. In the second scenario, Macropoland is either at its trough, where it is about to head up again because of its low inflation rate, or it is at its expansion, on its way to heading to its next peak.
The United States economy is made up of many different factors. Economy is defined as the management of financial factors for a community, business, or family. The economy changes over time is caused by change of an increase in aggregate demand which is caused by an increase in consumption. An increase in consumption is caused by a rise in income levels, a decrease in interest rates, and/or inflation. Over time the economy will experience economic booms and economic dips. An example of an economic boom was after World one. New inventions, new skillsets, and the expanding banking industry allowed for economic growth. An example of an economic dip is the Great Depression. The effects were detrimental as it caused some of the highest rates of
Business cycles are defined in the Webster dictionary as “economy-wide fluctuations in production, trade and economic activity in general over several months or years in an economy organized on free-enterprise principles”. These cycles have three main characteristics; expansion, recession, and depression. Expansion is known as increases in the demand for capital and consumer goods. Recession is known as the time when an economy slows down, and the level of sales and production start declining. Depression is know as the Demand for products and services decrease, forcing companies to shut down some production facilities, a period of recession ushers in depression.
The economy usually undergoes fluctuations with alternating periods of boom and slumps. Boom times are beneficial for most businesses while slump can make companies fall apart. Rising Demand and low interest rates generally encourage businesses to take more risk and expand. Changes in the interest rate, changes in exchange rates between international currencies, rising inflation can impact the performance of a small business significantly. High interest rate push up currency values, which make imports cheaper and exports dearer, thus lowering profit margins.
This is the final stage where poorly managed businesses, those with thin margins or large borrowings are likely to close their operations. This economic stage is one where consumer confidence has dropped and income is low. A period of time has to pass to allow income and confidence to pick up and for the economy begin to its recovery.
A market boom, recession, or growing inflation problem can all change the way an organization plans for the future and operates in the present. Unemployment levels, comparative foreign exchange rates, and the state of the global economy can all help or hurt a business' ability to get needed components and maintain a stable profit.’’ After t...
During economic recession period have an opposite effect. Sales of many industries become significantly lower. Consequently retailers may be stuck with large number of stock. And they may have to sell them at a less price. Clothing retailers and manufacturers also may need to sell lowered price clothing brands to compete with more common brands. When the disposable income of customer is low they shop for cheaper brands.
An economic recession is when spending slows down due to less money and jobs. At a certain point, the government would have to step in and implement expansionary economic policies. One action the government would take would include conducting expansionary fiscal policy, the other, expansionary monetary policy involving the Federal Reserve Bank, both of which effect the money supply, spending, interest rates, aggregate demand, GDP, and employment(Amacher & Pate, 2012).