Question

In: Economics

1) Compare and contrast the phases of the business cycle. 2) If efficiency is our goal,...

1) Compare and contrast the phases of the business cycle.

2) If efficiency is our goal, how do we know if our economy is running efficiently or not? Given the articles you have read and the things you have learned, what do you think about our current

economy? Is it running efficiently now?

Solutions

Expert Solution

1)Business cycle is the rise and fall in the economy.Business cycle has 4 phases--Expansion is the phase when real GDP increases and unemployment decreases.Expansion does not mean economic growth.When the economy starts recovering from recession , it is expansion and not economic growth.Inflation is at 2%.

Peak --is the point in business cycle where output stops increasing and it starts to decrease.

In Recession like Peak, output is decreasing and unlike expansion phase unemployment increases.There is mass lay offs.GDP growth is less than 2%.

Trough is the phase when Recession stops and output starts increasing again.

2)Economic efficiency takes place when the available resources in the economy are utilised to the fullest and there is minimum waste.When there is allocative efficiency, productive efficiency, distributive efficiency and Pareto efficiency in the economy , we know that the economy is running efficiently.Productive firms try to maximize their profits by minimizing costs and maximizing output..This is productive efficiency.When economic resources are allocated in an efficient way among firms and industries it is allocative efficiency .Distributive efficiency is when consumer goods are distributed in a manner that each individual consumes that unit of good which is highly valued by him compared to others.Again economic efficiency is related to welfare of consumers and reaching Pareto efficiency does not ensure that standard of living is equal in the economy. Pareto efficiency does not include equality in the economy. So achieving the goal of efficiency means steady GDP growth in the economy,low unemployment,low inflation , addition of jobs increase in manufacturing jobs,etc.are good indicators.

According to the report of July 2019, the US economy is doing well .There is steady GDP growth of 2.1 %, low unemployment and low inflation. Jobs about 150,000 are created in the economy . Manufacturing industries have grown.Level of inflation is less and increased demand due to high per capita income spurs growth.


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