Question

What are the four phases of the business cycle? How long do business cycles last? Why does the business cycle affect output and employment in capital goods industries and consumer durable goods industries more severely than in industries producing consumer nondurable?

Answer 1

Solution:-
Four phases of a business cycle are :- trough, expansion, peak, and recession.

empirically, the length of a complete cycle on an average moves within a range of 2--3 years to more than 8 years.

there is a natural differnce between capital goods industries/consumer durable goods and consumer nondurables industry. that is urgency. usually and mostly in recession, people postpone their planning of purchase of consumer durable goods, but nondurable goods such as food cant be postponed for long period. thus in recession, capital goods industries and consumer durable goods industries suffer more acutely and make these industries more worsen than that affect consumer nondurables industry.

It is very diificult or sometimes impossible to distinguish between these three types of unemployment because they can interplay. For example, a person who quits a job in search of a better one would normally be considered frictionally unemployed. But suppose the former job then disappears completely because the firm is in a declining industry and can no longer make money. Our still jobless worker could now be considered structurally unemployed. And then suppose the economy slips into a severe recession so that our worker cannot find any job and has become cyclically unemployed. it simple means that one can't be figure out accurate reason and cause behind one's unemployment. nobody roam with a description on their head that shows why this man is unemployed.

when one becomes unemployed it costs her in number of ways. first, the time that could be used in production if it could be employed, now it has been wasted in non-productive works like leissure because she does not have any job. the time wasted in frivolous activies has an opportunity cost of the wages that could be earned if had it been employed in some productive activity.

The “GDP gap” is the difference between the economy’s potential GDP and its actual GDP. The consequence of a negative GDP gap is that what is not produced is lost forever. Moreover, to the extent that this lost production represents capital goods, the potential production for the future is impaired. Future economic growth will be lower.

sitting idle and doing no productive activity can result in poverty, increase in crime, clash in family, mental and physical illness, unstability in socio-political economy and many more are the example of the noneconomic effects of unemployment.