Question

Look up current statistics for inflation and GDP in the economy. Use these statistics to determine what phase of the business cycle the economy is currently in. Be specific as to what is going on with the aggregate supply and/or aggregate demand curves. The answer needs to be 250 words please. Please cite sources.

Answer 1

Any economy faces four phases of business cycle: Expansion, Peak, Recession and Trough. Economy faces expansion path when growth rate is high and unemployment rate is lowest. After expansion face, economy enters the phase of peak where growth rate falls and prices rise. then economy enters into phase of recession and trough which are characterized by the fall in employment and output levels.

Presently, US economy is growing at rate of 2.1 % and unemployment rate is below the 5 % which is considered full employment level. Based on these facts, although, growth rate is below the pre-subprime crisis era, but still it is satisfactory. Now it is very difficult to say that if US economy has reached peak or still completing journey of expansion.      Some scholars contend that growth rate is below the pre-subprime crisis growth rate, thus economy would continue to expand in near future. While others say that international competition would not allow to expand more output in near future. Hence, growth rate has been peaked and it would enter recessionary phase.

Following is diagram:

In above diagram, AD is reaching the level where it would face vertical AS and which would push up prices only and output would not face rise.