Question

What are the impacts of the macroeconomic business cycle on demand in the home healthcare industry? Is demand in the home healthcare industry procyclical or countercyclical? Explain

Answer 1

Business cycle is represented by three phases; 1) phase of economic decline, 2) recovery, 3) economic growth.

Home healthcare industry signifies comparatively expensive healthcare service as healthcare professionals provide these services at the homes of by the professionals. In other words, such healthcare service is positively related to the level of income.

So, during the first phase of business cycle when economic activity is down due to crisis, demand for the home healthcare will also decline. This is because during the crisis income and output declines due to which demand of such services is expected to decline the most.

During the second phase, as the economy recovers, demand for home healthcare also recovers, as income levels start to rise.

Lastly, when the economy fully recovers then the demand for home healthcare also fully recovers.

Home healthcare service is pro-cyclical, in other words, the demand for such service decline during the crisis, while it recovers as the economy recovers.