Question

describe what the business cycle graph tells us about the state of the economy. With respect to the business cycle, describe the difference between the "expansion phase" and the "recovery phase".

Answer 1

business cycle graph tells us about the economic situation and the phase from which the economy is passing through.

business cycle has main following phase-

• STABLE SITUATION-when economy is at full employment level and demand is equal to quantity supplied.demand.this is the benchmark and any deviation would be compared from this point.
• EXPANSION-when the demand of an economy surpass the supply in an economy then the suppliers got encouraged and they use reserve and excess capacity of the resources.this represents the prosperity,growth and development of the economy.
• PEAK/BOOM STAGE-this the maximum point of an economy and here inflation is at its peak.this situation is not favorable in the long run and thus the government and central bank would try to control the situation through their respective tools that is fiscal and monetary policy.
• RECESSION-when government and central bank take respective steps then there is unemployment in the economy,the demand decreases and producers produce less and this situation is known as recession.it would also help to attain the economy stability.
• DEPRESSION-if there is any crisis in the nation then economy would move into depression.depression is a very serious problem in the economy,people won't be able meet their daily meals due to less production and high level of unemployment.government intervention becomes essential.
• RECOVERY-when government makes efforts,huge public spending are made,employment is generated and demand is increased and thus the economy would again reach at stability point.

DIFFERENCE BETWEEN EXPANSION AND RECOVERY PHASE-

• in the expansion phase,the economy is generally self reliable and private sectors plays an important role and they provide employment.government effort is minimum in this concern and when economy reaches at its peak then government and central bank tries to decrease the efficiency of the economy.
• in the recovery phase,government plays at important role,various incentives,stimulus packages,tax benefits are provided to the producers and people so the economy can be reached at equilibrium point.