which of the following is characteristic of a downturn in the business cycle? This is a topic that many people are looking for. star-trek-voyager.net is a channel providing useful information about learning, life, digital marketing and online courses …. it will help you have an overview and solid multi-faceted knowledge . Today, star-trek-voyager.net would like to introduce to you The Business Cycle Economics. Following along are instructions in the video below:
“Right in this video. We re gonna be talking about business cycles. Often referred to to as economic cycles. Now a business cycle.
Merely represents a fluctuation and business activity. A an economy. Whether it s the us economy or another economy experience is over a period of time now studying business cycles or economic cycles is really really helpful for a couple reasons. The first of which is it helps businesses or business.
Owners and managers be able to make decisions regarding how to run that business. So you might see that the economy potentially is going to dip into a recession. And that might play a role in your decision. Making as whether to increase staff or whether to make investments into equipment or other things likewise.
If you see that the economy is improving and is kind of coming into what we would call an expansion. You might make a decision to make further investments to be able to kind of take advantage of that expansion for individuals much like us knowing. The economic cycles can help us make investment decisions. So depending upon what our investment interests are whether they re stocks or bonds and those types of things there are certain types of stocks that are better suited for different stages of the business or economic cycle.
So before i get too much into that let s kind of talk through this graph here that you re looking at so you can see here towards the left hand side of your screen on this axis. We have what we would call real gdp gdp of course represents gross domestic product. Which is the dollar value of goods and services produced in an economy over a period of time. So whether it s a quarter or a year or even a month.
Although you commonly see this reported on an annual basis as well so you can kind of see the adjustments and the potential movements in the economy on the next axis..
We have time and so this is just progressing forward. It s not meant to denote any significant any particular period of time just rather time in general and then of course. We have this trend line. Which is just meant of course to show the natural kind of trend upward as you can see this line is gradually moving upward.
But along the way while we are moving upward overall. We certainly have some peaks and some valleys and that s where we get the economic cycles that reflect how we re doing economically. Which in turn impacts. How we re doing as consumers.
So looking at this there are a couple of different stages. That you can see through the natural ebb and flow of our economy. So this rising period. Here that you see this is what you would call an expansion and an expansion as you know is is the increase in gdp.
And is important for a variety of reasons not just that itself is an expansion. But it s important because what that means for individuals and businesses in the economy. So expansions typically result from an increase in spending so our economy especially here in the us. And this is characteristic of most free market economies.
As well is largely is is sort of reliant on how much consumers spend so i think about two thirds roughly of gdp is based upon consumer spending. So when looking at these peaks and valleys. You can usually look back. And say okay.
What was consumer spending like and that s pretty much the determining factor because when there s increases in spending..
This creates a lot of opportunity this creates opportunity for businesses. Which in turn hire produce more goods make investments and then of course it further helps consumers in the terms of employment. So commonly with expansions you see a couple of different things happen you typically see increases in employment. It typically see increases in production usually increases in sales from a business perspective.
And then you also see increases in incomes at the consumer level. So for all intents and purposes expansions are really really good we like expansions and we would love it if our economy just expanded all the time. But the reality is is that our economy is a byproduct of kind of business activity and we know that at some point things cool recessions take place. There are other events that happen like the housing crisis that of course caused this kind of immediate correction.
If you will and as a result things can t get keep going well for so long. So eventually we get to this top period. Here and this is what we call the peak. This is the top point in the expansion.
This is like the top of the roller coaster and so now we begin to plunge down further and further until we get to kind of this lower period here now as we re continuing down this next section is what we would call a recession or rather generally speaking. I can use the terminology of a contraction so economy s contract. And that s just a natural kind of component of the economy. And that means now that our gdp is declining now the way that we describe that we can specifically use the terminology of a recession.
Which specifically is when gdp declines for two quarters so whenever you see this gdp figure decrease for two consecutive quarters. I mean consecutive so you can t be one and then a good period and then a down period has to be consecutive. Then we have a recession and if it s really really bad like you know two quarters and beyond well then we ll throw out the terminology of a depression which we ve used really only once you know in the past hundred years or so you know given in the 1920s and 1930s so a contraction is bad because it essentially produces the exact opposite of an expansion now remember we re expansions are driven by consumer spending. Contractions of course are driven by d creases in spending.
So in after the 2008 housing crisis spending dropped significantly in large part because of housing and because people were losing their homes and foreclosing and as a result of that that tends to drop spending..
The housing market itself was in disarray and as a result there you really felt that broadly speaking across all aspects of the economy. So with decreases in spending you eventually of course businesses. Now realize hey people aren t buying our stuff. So now we have to lay off people which in turn of course you have a decrease in employment not unemployment.
But a decrease rather just unemployment. You have a decrease in production. You have decreases in sales. And then eventually you can get to the point.
Where you either have a decrease or stagnant incomes. Which is actually really really bad. So people s incomes aren t going up you might have inflation of course. Which is the increased price in goods and services and incomes might not be keeping up with that which is really bad because you have less money overall to spend on the things that you normally buy and so that s what tends to happen now once you get to the very bottom this period.
Here is what we would call a trough. This is the bottom point in the contraction and then of course. We get to ride all the way back up and go through it again and notice. It is cyclical and it sounds like insanity.
I know. But it is cyclical meaning that we are going to experience expansions and contractions and regardless of what the federal reserve does or any kind of fiscal policy measures we are going to experience those things now just for kind of more information. The government entity. The national bureau of economic research is actually in charge of identifying when these expansions and contractions take place and so they use historical data and then make decisions on ok.
This is when the contraction started and this is when it ended and this is when the expansion period began and all those different types of things and so this is interesting because it just kind of gives you an idea for how long these things last so a expansion specifically last for approximately 58 months..
And this is based upon data obtained so using economic data from 1945. I believe so post world war two all the way to present time you know expansions lasts about fifty eight months. Let s roughly about five years is how long expansions lasts. Now if you re kind of looking at your calendar.
Right now thinking like hey. What s going on now you ll notice pretty quickly that this expansion has lasted longer than five years. We re kind of going on roughly about i think ten or so so we ve had a relatively good period overall. Although not everyone in the economy has felt that expansion.
The same way now the other side of things is of course. The contraction period. And so contractions are when well how long do those last on average contractions last about eleven months so certainly not as bad. But again it largely depends upon how deep into a contraction.
The economy goes at the worst of the great recession. Which was caused by largely the housing crisis. You know we had very significant unemployment. So that s roughly how an economic cycle works now of course.
It s really hard to predict these things but you can look at things like gdp inflation unemployment yield curves and other economic indicators to help kind of paint a better picture as to where the economy is going. Although. It s really really hard to predict with a hundred percent certainty as you ve seen through the past. ” .
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