Economic Cycle - Research Paper Example

These fluctuations are what are referred as economic or business cycles and distinguish recessions from expansions. Recessions or depressions “are period of economic decline, expansion/boom of economic prosperity, and inclusive of the ebbs and flows of economic activity make up economic/business cycle” (Romer, “The Business Cycle”). Today, most economic experts tend to determine these cycles by identifying the turning and on-trend points through different methodologies like use of the level of output or level of output gap.

Though economic cycles can be traced before WWII upon various economic crisis, much of the concept today adopted the classical work of Burns and Mitchell, who characterized them “as fluctuations of output around the growth path that occur with a frequency of three to five years” (Araujo 6). With a complete set of data for the period and greater understanding of the existing economic indicators, one could determine the amplitude and duration of the economic cycle, and the co-movement of economic activities involved when comparing several economies.

Experts use economic indicators to forecast and explain the causes of the economic cycles. Considering there are recurrent seasons of booms and depressions, different events, policies and decisions applied or adopted by the involved parties must have occurred to either stimulate a shock or recovery after recessions. An economy is said to be at full employment when it achieves a level of production, when all the inputs to the production process are actively used, inflation remains constant, and output is within the normal range (Romer, “The Business Cycle”).

Changes in factors that influence deviation from this normal production could trigger inflation and push the economy either beyond or below the full employment range to cause cycles in an economic performance. Below are the influencing factors; monetary policy, public spending, prising,