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Business Cycles

  • Date Submitted: 03/13/2013 07:51 AM
  • Flesch-Kincaid Score: 36.5 
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Definition
The definition of a business cycle is a consecutive periods of alternations of economic activity. These fluctuations occur around long-term growth trend, and usually involve alternating shifts over time periods of accelerated economic growth and periods of decay.              

Periods of a business cycle
Causes for business cycles
There are lots of causes for business cycles the first one is:
• Interest rates. Alterations of the interest rate causes affect consumer spending and the growth of the economy. For example, if the contraction of the interest rate decreases there will be a reduction in price of consumer goods which will encourage consumer spending. This leads to higher spending and economic growth because people stop worrying about spending their money.
• Consumer and Business confidence. People are easily influenced by external factors and events. If there is consecutive of deplorable economic news, this usually leads to discouragement of people from spending and investing their income this causes a small downturn into a huge leakage of money, as people reduce their spending. Once the economy recovers from that, Confidence increases which leads more bank loans. With this people are more confident in spending their income.
• The Multiplier effect. The Multiplier effect is defined by the decline in injections which may cause an immense final drop in real GDP. For example the government reduce the amount they spend on public investment; there will be a fall in aggregate demand and impoverishing the employment rate causing people to become unemployed, this will lead to even lower demand in the economy. However, an injection could have an affirmative multiplier effect.
• The Accelerator effect. The accelerator effect expresses that investment relies on the rate of change of economic growth. If the growth rate staggers, firms will reduce investment because their expectation of output to rise as fast as they want it to.
• Inventory Cycle....

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