Business cycles represent the regular swings or fluctuations that occur in a country’s economic growth and the long-term trends exhibited in the growth rate of total production. It also entails the economic expansions and contractions of the overall business activity evidenced…
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During the period of economic contraction, the consumer and business demand declines. However, during expansion, the demand increases (Hirschey, 2009). All through the cyclical fluctuation period, businesses react to the effects differently.
The organization under discussion is a beauty shop and spa that provides services to women from all over the country. The business location also offers an opportunity for the business to serve local tourist women too. In the previous financial year, the business has enjoyed slightly increased profitability. However, in previous years, and with the recession and rise of unemployment the shop experienced decreased proceeds. This has been predominantly true of this organization because it is more of a luxury service that require extra consumer spending.
This organization is sensitive to both the economic expansions and contractions in the economy. Economic contractions or recession represents a stage in a business cycle where the economy is in decline. This results to an economic hardship where the rate of unemployment increases. As a result, the rate of consumer spending decreases since individuals cut down on luxury spending. Therefore, this business depends on the economy’s stability that by extension determines the consumers’ income. This is because it offers luxury services that amount to extra consumer expenditure. The decrease in consumer spending may also prompt the businesses to cut back on their staff in order to minimize operating costs and holdup the capital investment decisions (Hirschey, 2009). The organization may trim down the number of service’s shifts in order to cut the operating expenses incurred. Similarly, any expansion strategies may delay expanding this business. An increased income results to increased consumer spending. A reduction n consumer spending leads to a decrease in the business’s income.
Conversely, economic expansion results to reverse effects. The
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Economic indicators are useful only when the researcher has the idea to interpret. There has been strong correlation between economic growth and profits of organizations. Data on economic indicators Unemployment rate: The following provides the data on unemployment rate of United States.
Intermediate goods do not have their utility and demand for their own sake rather they are demanded for the production of final goods. For instance if raw cotton is used for producing yarn, raw cotton is the intermediate good then, but if yarn is used for producing cloth, then yarn becomes the intermediate good.
They are structural unemployment, frictional unemployment and cyclical or seasonal unemployment. Structural unemployment arises out of the change in demand of technology and taste in the industry. For instance, the typewriter industry has no demand now because of the emergence of computers.
These fluctuations are usually measured by the real gross domestic product (GDP). One of the policy makers' main roles is to smooth out the business cycle and to reduce its fluctuations by narrowing the margin between the stages of growth and decline.
The term "cycle" can be rather misleading as business cycles don't tend to repeat regularly in time.
Business cycle fluctuations are often explained against the model of Keynesian economy where the economy or an industry reaches short term equilibrium in a state of less than or above full employment status. (Sullivan and Sheffrin, 2003) When an economy or a industry
When the country’s real GDP, in a particular year, suffer from a downfall for two consecutive quarters, recession starts out. From the peak of the business cycle, recession comes in then, ends at the cycle’s trough. A prolonged recession, on
During the recession for instance, the rate of unemployment rises and the inflation rate declines (Stock and Watson 56). The period is characterized by low level of investments and decline in the GDP.
Considering the data of US in 2012, US can be said to be in the
From the 1970s, Hayeks theory of the government only participating in a limited way in the economy continues to gain popularity. The Hayeks ideas influence ensures support for the ideas while there is a continued feeling of impact today. However, it is critical to