Question

(a) Examine the trend of output growth, unemployment and inflation throughout the business cycle of expansion and recession in the economy

Answer 1

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Question:

Answer:

Business Cycle:

It is a type of fluctuation that is occur during a long term in the economy. It is also called economy cycle and trade cycle. Every business cycle is dynamic in nature and cross through the different phase like, expansion, peak, recession, trough and recovery. All businesses and economies go through this cycle, though the length varies

Expansion:

The output growth, unemployment and inflation during expansion period:

Output growth:

During the expansion the consumption, investment, government spending is high. Employment rate grow rapidly, consumer's and investor's confidence level is high. The productivity of input or work force is high. Income grow fast. So, higher the consumption, investment, government spending, high employment rate grow increase the aggregate demand that increase the total output level in the economy.

Unemployment:

During the expansion the consumption, investment, government spending is high that increase the aggregate demand and higher productivity increase the aggregate supply. Higher aggregate demand and aggregate supply increase output growth and job opportunity in the economy. High job opportunities or job creation increase the employment growth and decreased the unemployment rate.

Inflation:

Higher consumption, investment, government spending increase the aggregate demand that increase the total output growth and inflation together. Because increasing aggregate demand increase the price level.

Recession

The output growth, unemployment and inflation during recession period:

Output growth:

When, falling in GDP or output growth in two successive quarters then its called a recession phase.During the expansion the consumption, investment that decrease the aggregate demand that decrease the GDP or output because decreasing demand negatively affect the output growth.

unemployment:

During the recession the consumption, investment is falling down that decrease the aggregate demand. Falling or low aggregate demand decrease the output growth and job creation in the economy. Decreasing job opportunities or job creation decrease the employment growth and increased the unemployment rate.

Inflation:

Falling or very low consumption, investment, increase the aggregate demand that decrease the total output and inflation together. Because decreasing aggregate demand decrease the price level.

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