Question

what are the four stages of the classical business cucle , and how employment , income inflation , consumer confidence and productivity are typically affected during each phase? illustrate

Answer 1

There are four different stages of classical Business cucle

EXPANSION- This is the initial stage of a product life cycle, development, is when the products is first introduced to the market .Typically sales are slow during this stage because consumers are unfamiliar with the new product. An expansion is a stage between peak and tough, when economy is growing, the GDP which measure economic output is growing .GDP rate would be healthy between 2% and 3%.The unemployment growth reaches its natural rate of 3.5% to 4.5%. Inflation rate is near its 2% target . and the stock market in bull market

PEAK- At this stage when limit of growth is attained marks the reversal in trends of economic growth is attained marks the reversal in trend of economic activity such as production ,employment ,output,wagesprofits demand and supply of products and sales. If demand outstrips supply, then the economy can overheat .Investors and business complete to outperform the market for taking more risk to get more profit in investment.

CONTRACTION-At this stage ,stock market correction may indicate that assets are overvalued .The fed can switch to expansion monetary policy if growth rate of economic is slow or even turns negative ,It will lower interest rates and buy treasury in open market operation.

TOUGH PHASE- Consumer must regain confidence before the economy can enter a new expansion phase .That often requires intervention with monetary policy and fiscal policy . Central bank pull out all the tools to jump start the economy out of through.it also expanded its open market operation in a program called quantitative easing.

· Income inflation affect-Rising prices, known as inflation ,impact the cost of living ,the cost of doing business, borrowing money,mortgages,corporate and government bond yields ,and every other facet of the economy .Consumers have more money to buy goods and services, and the economy benefits and grows.

· Employment- Real GDP measures the value of all final goods and services produced in a country during a specific period of time, unemployment measures the percentage of all the workers who are not able to find paid emplomency despite being willing and able to work at currently available wages.

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