Question

What phase of the business cycle are we currently in, in the United States?

Identify at least one key factor that an economist uses to determine the business cycle phase.

Answer 1

The Business cycle otherwise known as economic cycle is divided into four stages;

• Expansion Stage
• Peak Stage
• Recession stage
• Trough stage

Expansion Stage:-

It is considered as natural state of an economy. It is featured by;

1. Increasing GDP
2. Low unemployment
3. Healthy turnover
4. Consistent Growth in wage

Peak Stage:-

When there seems an increase in inflation and fall in growth, economy shall move to the Peak phase.

Recession Stage:-

When there is an increase in inflation which is moving speedy than the economy growth, it will tend to move to recession stage. During recession,

1. There will be a fall in wages
2. The activity of global economy will get slower
3. There might be a rise in unemployment.

Trough Stage:-

It is the last stage of business cycle. During this stage, economy will tend to stabilize and shall move to the trough stage and thereby starting the next expansion.

In US, National Bureau of Economic Research is the responsible authority for selecting the dates of business cycle. As per NBER, the last recession monitored was the Recession in 2007-2009 which is called as Great Recession. After that US is in the expansion stage.

Current Scenario:

• Currently, COVID - 19 pandemic is resulted in recession from the month of Feb 2020.
• As i said above, for approx 11 years since 2009, US economy was in the stage of expansion.
• The US economy started to face the stage of contraction of business cycle from Feb 2020.
• Due to the COVID -19 situation in US, Government is forced to close the non essential business units in March 2020.
• Later by April month, the unemployment were around 23.1 million there by the rate by 14.7%(Unemployment Rate).

Current Business Cycle

Answer to Second Question:-

In US, NBER is considered to the last resort which will decide the dates of various stages of economic cycle like Peak, Trough etc. Expansion stage is the period which flows from trough stage to peak stage. On the other hand, Recession stage is considered to be a flow from peak to trough.

In US, NBER pointed out a recession stage as the essential fall in the economic activity which is spread accross the global economy.