Question

Business Cycle

• What are the four phases of the business cycle? Which phase are we in now? When do you think the United States economy will move to the next phase? Visit the NBER website on business cycle dates and review the recent business cycle data. How long as the economy been in the current phase? (You can also talk about COVID-19)

Answer 1

Q.1. What are the four phases of the business cycle?

Ans.- The business cycle is the regular upsurge and downsizing of economic growth over time. All the economies and business organizations have to face this cycle. The four phases of the business cycle are as follows-

i. Expansion- At this stage, the economy (GDP) grows at a healthy steady rate of 2% to 3% annually. Unemployment and Inflation rates are under control. The stock market enters into the bear stage.

ii. Peak- It is the second stage of the business cycle. The GDP grows more than at the rate of more than 3% annually. Inflation increases by more than 3% and it may turn into double digits. There is an asset bubble and stock market enters into "irrational exuberance" stage.

iii. Contraction- It is the third stage of business cycle. Here, the GDP growth rate becomes slow and grows at a rate of less than 2% annually but is not negative. The stock market enters into the bear stage. The unemployment rate massively increases.

iv. Trough- It is the fourth stage of the business cycle. In this stage, the economy hits the bottom and performs miserably. If not managed well, it may led to a recession.

Q.2.- Which phase are we in now?

Ans.- The USA economy is in the expansion phase of the business cycle.

Q.3.- When do you think the United States economy will move to the next phase?

Ans.- Since the USA economy has been in the expansion phase for over a decade many experts argue that a recession is just around a corner. This proposition seems true as currently we are facing the onslaught of COVID-19 and there are reports which predict that the growth rate of the USA economy will become negative due to this coronavirus.

Q.4.- Visit the NBER website on business cycle dates and review the recent business cycle data. How long as the economy is in the current phase?

Ans- The USA economy has been in the current business cycle stage of expansion since 2009 when the last trough occurred in the USA economy. It has been in this stage for over a decade.