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In: Finance

What types of cycles predict an industry’s sensitivity to the economy?

What types of cycles predict an industry’s sensitivity to the economy?

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Expert Solution

A cyclical industry is sensitive to the business cycle, such that revenues generally are higher at the time of economic boom and are lower in periods of economic distress. In such industries employee mobility is usually high.

There are ways to predict industry's sensitivity, which are given as follows -

  • If there is uncertainty, the strength of the business cycle should be tested.
  • Understanding the relationship between inputs and outputs of a system.
  • Trying to find out possible errors in a business model.
  • Testing the simplicity of a model like if there are any inputs present which do not contribute to the output positively
  • Checking if there is proper communication between those who work at different levels of the system.
  • Finding the scenario where output is maximum with a specific input and the repetitiveness of occurrence of that scenario.
  • Finding out a scenario where observations, model inputs and forecasts are give best output and also a scenario where least output is obtained.

jeff jeffy answered 3 weeks ago
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