Question

Explain business cycle and its causes. ( I want the answer computer typing NOT handwriting)

Answer 1

Business cycle describes the rise and fall in production output of goods and services in an economy. Business cycles are generally measured using rise and fall in real inflation-adjusted gross domestic product (GDP), which includes output from the household and nonprofit sector and the government sector, as well as business output. The period of high income, output and employment has been called the period of expansion, upswing or prosperity, and the period of low income, output and employment has been described as contraction, recession, downswing or depression. The economic history of the free market capitalist countries has shown that the period of economic prosperity or expansion alternates with the period of contraction or recession.

The business cycle is caused by the forces of supply and demand, the availability of capital, and expectations about the future.

Expansion: When consumers are confident, they buy now. They know there will be future income from better jobs, higher home values and increasing stock prices. As demand increases, businesses hire new workers.The increase in consumer income, further stimulates demand. A little healthy inflation can trigger demand by spurring shoppers to buy now before prices go up. A healthy expansion can suddenly turns into a dangerous peak. It happens when there's too much money chasing too few goods. It can either cause price inflation or an asset bubble.

Peak: If demand outstrips supply, then the economy can overheat. Investors and businesses compete to outperform the market, taking on more risk to gain some extra return.

Contraction: There are a rapid increase in interest rates, a financial crisis, or runaway inflation. Fear and panic replace confidence. Investors sell stocks, and buy bonds, gold, and the U.S. dollar. Consumers lose their jobs, sell their homes, and stop buying anything but necessities. Businesses lay off workers, and hoard cash.

Trough: Consumers must regain confidence before the economy can enter a new expansion phase.