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Analysis of the Business Cycle - Essay Example

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Running Head: Business Cycle Customer Insert His/her name: University name: Topic: Analysis of the Business Cycle: In order to determine the phase of business cycle in which the United States Economy stands today an analysis of its GDP growth rate, unemployment rate and inflation rate is necessary…
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Analysis of the Business Cycle
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Download file to see previous pages The United States unemployment rate in May 2011 was 9.1 percent slightly higher than that of April 2011 which was 9 percent. Employment rates in government sectors continued to decline while job opportunities were generated in private sector, health care and mining. The number of unemployed person in May 2011 was 13.9 million. Inflation rate in United States has a continuously rising trend. It has systematically increased from 1.6 percent in January 2011 to 3.13 percent in June 2011. While in April and may it sustained on 3.2 percent. United States economy growth rate has greatly decelerated since last few years the above analyzed data shows that United States economy is in a phase of slow recovery with its 3.3 percent GDP growth rate. There had been fluctuations in inflation and unemployment rate- slight increases and decreases and some times the rate sustained at one level. The growth rate here is very slow and it is insufficient for the recovery of United States economy. With the same growth rate it can be projected that the recovery of the economy will speed up in 2015. By bringing down the inflation and unemployment rate and increasing the GDP growth rate United States can fasten up its recovery stage. There had been high rising trends in United States GDP growth rate. It was the highest in the year 1990 with an amazing growth rate of 10.5 percent. A monopolistic firm has to analyze the GDP growth rate, inflation rate and unemployment rate of the economy very carefully as these aspects can have a direct effect on its labor cost and sales rate. As we can see a rising trend in GDP growth it shows that the whole economy is in function and there is an increase in aggregate demand which in turn increases the inflation by demand pull and cost push. At this stage a competitive monopolistic firm must increase its sales as there is a huge amount of money facing a little amount of goods. An increase in sales can occur when the GDP growth rate is increasing along with the inflation rate. But when there is a negative trend of gross domestic product a monopolistic firm may face a reduction in its sales rate. Because the economy is functioning in a slow manner the aggregate demand decreases and therefore the firms have to cut down their sales in order to avoid losses. The functioning of a competitive monopolistic firm here would be that it would increase its sales because the data shows an increase in GDP growth rate from 1.8 percent to 3.3 percent which in turn has increased the inflation rate as well from 1.6 percent to 3.13 percent. The monopolistic firm should also cut down its labor cost very cautiously. The wages cost is comparatively lower when the unemployment rate is low and it is slightly higher when the unemployment rate is high. Here the unemployment rate is increasing, as it was 9 percent in April and 9.1 percent in May and the monopolistic firm can cut down its cost but the firms should keep in concern that the labor or wage cost increases with the increase in GDP. If the firm will not keep an eye on increasing GDP rate and will cut down its cost to the minimum limit then a competitive firm will become uncompetitive because when the economy picks up and the Gross Domestic Product rises the increase in labor or wage cost may faster than the increase in sales of the firm. Under the present circumstances the firm can cut down its cost slightly and should keep a precautious look on GDP growth rate and unemploy ...Download file to see next pagesRead More
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