Question

Congratulations! You entered a sweepstake and won a fantastic prize: a trip around the world. There’s only one catch: you have to study the economy of each country (from the list below) that you visit, and identify the current phase of its business cycle. Be sure to explain your responses.

1. Country 1. While the landscape is beautiful and the weather is superb, a lot of people seem unhappy. Business is slow, and production has dropped steadily for the past six months. Revenues are down, companies are laying off workers, and there’s less money around to spend.

2. Country 2. Here, people are happily busy. Almost everyone has a job and makes a good income. They spend freely, and businesses respond by offering a steady outflow of new products.

3. Country 3. Citizens of this country report that, for a while, life had been tough; lots of people were jobless, and money was tight. But things are getting much better. Workers are being called back to their jobs, production is improving, and people are spending again.

4. Country 4. This place makes you so depressed that you can’t wait to get back home. People seem defeated, mostly because many have been without jobs for a long time. Lots of businesses have closed down, and those that have managed to stay open are operating at reduced capacity.

Answer 1

Step 1- Mesuring the health of the company

Every day, we are bombarded with economic news. We’re told that the economy is struggling,
unemployment is high, home prices are low, and consumer confidence is down. As a student learning
about business, and later as a business manager, you need to understand the nature of the U.S.
economy and the terminology that we use to describe it. You need to have some idea of where the
economy is heading, and you need to know something about the government’s role in influencing its
direction.

Step 2- The current phase of its business cycle

The economic ups and downs resulting from expansion and contraction constitute the business cycle. A typical cycle runs from three to five years but could last much longer. Though typically irregular, a cycle can be divided into four general phases :-

1. Prosperity,
2. Recession,
3. Depression (which the cycle generally skips), and
4. Recovery:

Country 1- Recession

Eventually, however, things slow down. GDP decreases, unemployment rises, and because people have less money to spend, business revenues decline. This slowdown in economic activity is called a recession. Economists often say that we’re entering a recession when GDP goes down for two
consecutive quarters.

Country 2- Prosperity

During prosperity, the economy expands, unemployment is low, incomes rise, and consumers buy
more products. Businesses respond by increasing production and offering new and better products.

Country 3- Recovery

Generally, a recession is followed by a recovery in which the economy starts growing again.

Country 4- Depression

If, however, a recession lasts a long time (perhaps a decade or so), while unemployment remains very
high and production is severely curtailed, the economy could sink into a depression. Though not
impossible, it’s unlikely that the United States will experience another severe depression like that of
the 1930s. The federal government has a number of economic tools (some of which we’ll discuss
shortly) with which to fight any threat of a depression.