Part 1. Respond to the following in a minimum of 175 words:
Compare and contrast the phases of the business cycle.
Part 2. Reply to the following thread in a minimum of 100 words:
“A business cycle is also known as the economic cycle and is the downward or upward movement of the gross domestic product around its long-term growth trend (Koellinger & Roy Thurik, 2012). There are four phases of business cycles, which include peak, trough, expansion, and contraction. The peak phase is the highest point of all the business cycles. This is the point in which the economy is producing at the maximum allowable output, employment is full, and there is evidence of inflationary pressures on the prices of goods and services (Christiano, Eichenbaum & Trabandt, 2016). Most people are willing to work at this time, and thus the production output is at an all-time high. The expansion cycle is characterized by an increase in employment levels and economic growth. There is a general increase that is witnessed in the economy of the country, as more people can acquire employment. There is also upward pressure on the prices of commodities. The phrase signifies a movement from the contract phase, then leads to an increase in the majority of the factors of production and economy.
The contraction phase on the other hand is a critical phase of the business cycle that is characterized by slow growth, a decline in employment levels and reduction on pricing pressures. There are minimal transactions carried out which makes most of the business to lose out on the revenues that they were getting. The slowness in the economy forces most companies to do away with a few employees, and this increases the level of unemployment in the country. There is increased competition for the work that is available and some of the businesses are no longer in operation (Christiano, Eichenbaum & Trabandt, 2016). The trough phase signifies the lowest phase of the business cycle. It is in this phase that the slowing of the growth of the economy ceases, and basically, the economy has reached a rock bottom. The businesses have closed, and there is no hiring of workers that is going on. The unemployment levels are at an all-time high, and most of the companies are unable to keep enough working capital to keep their doors open. This leads to most businesses shut down.” – Lacey E.
Christiano, L. J., Eichenbaum, M. S., & Trabandt, M. (2016). Unemployment and business cycles. Econometrica, 84(4), 1523-1569.
Koellinger, P. D., & Roy Thurik, A. (2012). Entrepreneurship and the business cycle. Review of Economics and Statistics, 94(4), 1143-1156.
Part 3. Respond to the following post in a minimum of 100 words:
“There’s four different phases of the business cycle: Expansion, peak, recession, and trough.
Expansion is when the economy is growing, people are getting jobs, everyone is spending money, and the unemployment rate is getting closer to it’s natural rate.
Peak is when the economy has grown as much as it can, it’s maxing out all of it’s resources to produce as much as it possible can. This is generally not a good thing since working at 100% all the time is never good for anything. Just like peaks are generally found right after expansions you can soon expect a recession to happen.
Recession isn’t always a bad thing, but it can be, many things can cause recessions from capital of products and work force, to simply having less demand for the things produced.
Trough is pretty much the opposite of peak. It’s when the economy hit as low as it’s going to go, there’s no other direction then up and into another expansion which completes the cycle. A trough is generally when a lot of people get laid off from work due to the lack need for such a large work force. Trough aren’t always bad, just like peaks aren’t always good, just a part of life that needs to be prepared for.
I find an easy way to think of the cycles is farming. Start planting all the seeds and letting them grow is the expansion part. Peak is when all plants have grown and are ready for harvest. Recession is after the harvest, you need to sell the plants you grew, which is still work but far less work then harvesting. Trough is simply waiting for winter to end so you can farm once more.” – Orrin M.