Question

First fully define durable and non-durable goods. Second graphically and in writing and describe the business cycle from recession and depression to economic boom.

Answer 1

Durable goods are the goods that last for a period of time, often defined as three or more years.For example, furniture, automobiles etc. Non-durable goods are the goods that often do not last for a period of time and are often consumed, such as food or any other service.When times are tough, consumers and industries have to continue buying non-durable goods, but they put off spending on non-durable goods until time is better. Thus, for a producer selling non-durable goods, the impact of recession will be less as compared to the producer selling durable goods.

The term business cycle refers to economy wide fluctuations in production, trade and general economic activity.Thus, upward or downward in the GDP is referred to as Business Cycle. The phases of the business cycle are as follows:

1. An expansion is characterized by increasing employment, economic growth, and upward pressure on prices.

2. A peak is the highest point of the business cycle when the economy is producing maximum output.

3. Following peak, the economic activity slows down, growth slows and unemployment increases.This is called as contraction phase of the economy.

4. At the trough, slowing ceases and economy hits the bottom with the next phase of expansion and contraction.