Different Business Cycles – Assignment Example
The paper "Different Business Cycles" is a wonderful example of an assignment on macro and microeconomics.
The economy faces different business cycles that keep fluctuating with time. These cycles include periods of expansion in the economy, followed by contraction periods, then revival cycles, leading to another expansion cycle. Recessions occur in the contraction cycle as highlighted in this discussion, which also advocates for investments to be done in the expansion phase.
What is the definition of a recession? Who decides? In the last few years, have we been in a recession, or have we been in a depression, or have we been in neither condition?
According to the National Bureau of Economic Research (NBER), a recession refers to a period between a peak and a trough. A peak refers to the point at which a recession begins, and a trough relates to the point at which the recession ends. Such periods are characterized by a decline in economic activities across the economy, which lasts for more than a few months. Various factors indicate the occurrence of a recession, such as a decline in the real GDP, and real income. More to these, the rate of unemployment rises as employers downsize their staff, to enable them to cope with their expenses. This follows the subsequent decline in industrial production, as well as overall sales.
The National Bureau of Economic Research serves as the body that determines when a recession begins, and when it ends. The organization operates privately and seeks to understand the economy in a better way, through the employment of several economy experts who analyze the U.S. economy. The most current recession started in December 2007 and ended in June 2009 (“National Bureau of Economic Research, 1). An end to a recession leads to a period of expansion, where the economy grows, thus providing suitable economic conditions. Therefore, given that we are now in 2014, it can be said that we have not been in a depression lately, and the recession ended more than three years ago.
In your view, given your analysis in answering the preceding set of questions, should your client begin investing now, or should she curtail investment and wait for safer times?
Given that the economy is in an expansion cycle, this is the best time to invest. Consumption of goods increases during this time as the GDP of the country keeps on growing. This translates to more demand for manufactured goods, thus making it advisable to invest in the business during such an economic cycle. More to these, an expansion period accounts for more sales, which would improve the profits of the company, leading to greater returns on the capital invested. The period also serves as a potential time for additional hires as the business grows, thus necessitating increased labor.
In conclusion, the different cycles of the economy determine the viability of one’s investments. During the recession, investments tend to be of low value, and they do not give investors substantial returns. However, an expansion period depicts growth in the economy, thus providing investors with positive returns on their investments the Gross Domestic Product growth leads to an increase in real income.