Description
What are primary phases of the business cycle?
Explanation & Answer
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Expansion Phase
This phase is actually between the peak and the trough. This is when the recession is flourishing.
The Gross domestic product which calibrates economic productivity is swelling. The GDP
progress scale is in its bloom when it's in 2-3 percent scale. For unemployment, it gets to normal
proportion when it is about 4 percent. Inflation is close to 2 percent aim. Then the market is in a
booming market. A properly controlled market can hover in the growth phase for quite a number
of years. They are referred to as Goldilocks economy. The expansion phase approaches its edge
when the economy becomes too hot and hence the GDP development rate becomes greater than
3 percent and inflation gets to be greater than 2 percent.
Peak Phase
This is the second phase. This is the month when the expansion converts into the contraction
phase. It is the phase in which the raise in development rate of business cycle obtains its
maximum limit. In this phase, economic factors like employment, production, sales and profits
are higher however, they do not raise further.
Contraction Phase
This is the third phase which begins at the peak and reaches its edge at the trough. Here the
economic progress weakens and the GDP declines to below 2 percent.When it shifts to a
negative, then this is what economists refer to as a recession. Mob unemployment makes the
headlines, as the unemployment rate starts to rise. But it doesn’t occur till approaching the edge
of the phase since it is a delayed sign. Hence businesses hire new employees when the recession
is over and stocks get into a bear market as investors sell.
Trough Phase
It is the fourth phase and it is the month in which the economy converts from contraction to
expansion phase. This is when the economy is at its lowest.
REFERENCES
Andersen, Esben S. Schumpeter's Evolutionary Economics: A Theoretical, Historical and
Statistical Analysis of the Engine of Capitalism. London: Anthem Press, 2009. Print.
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