Question

When our country is experiencing an expansionary phase of the business cycle can you explain why employment rates rise? Why are unemployment rates higher when our economy is in a recessionary phase of the business cycle? Please provide real-life examples in the response.

Answer 1

A business cycle is made of different phases such as expansion, recession, recovery, and boom. In all these phases, the employment rates and consumption changes.

When we talk about the expansionary phase of the business cycle, It can be characterized as a time where the economy is having abundant of resources so that the citizens can buy the product and services demanded by them. Due to greater disposable income, the customers start buying more products and service as a result of this increased aggregate demand, the producers need to invest in increasing their production and thus they invest in hiring manpower and establishing more production units. Due to this, the chances of employment in the economy increases in the expansionary phase.

On the other hand, the rescission can be seen as a phase of the business cycle where the economic growth of the country decreases, as a result, the disposable income of the public decreases and as a result of which the aggregate demand declines. When there is reduced or no demand, the producers tend to lay off the manpower and shut down the production units making many people jobless and thus increasing the unemployment rates.

This can be seen in the form if economic slowdown faced in the USA during 2009-10 where due to financial crunch of many banks, economy underwent a recession and it resulted in the job loss of many people. At present, the economy of the USA is recovering and the unemployment rate at present is lowest in last 2 decades at 4%.

I REQUEST YOU TO KINDLY RATE THE ANSWER AS THUMBS UP. THANKS, A LOT.