Question

In: Economics

a. What can the business cycle tell you about the status of our economy today and...

a. What can the business cycle tell you about the status of our economy today and into the future?

b. Given what you have learned about the U.S. Business cycle over the past 60 years, please explain 4 things you should do to enhance your personal odds of achieving personal future success.

Please answer both question Thanks

Solutions

Expert Solution

A. The current phase of the business cycle tells you which stage of the cycle the economy is in and what state it will be in the near future. It helps in making personal financial decisions too. If the economy is in the expansion phase, it means the market is growing at a healthy rate. If it is in the contraction phase, growth slows but it isn't negative. The stocks will now enter a bear market.

B.

As of June 2017, the economy has been in the expansion phase. It has been since June 2009 for eight years. Historically, expansion phases last five years or so.

It isn’t at peak because there hasn’t been inflation. That’s a typical warning sign that expansion is heading toward an end.

If the economy is in the trough you should start adding commodities like gold, oil and real estate, as they're cheaper in the recession.

If it's in the contraction phase, it's too late to sell stocks. Catch the rebound when it occurs. Move some of your assets to bonds or cash.

In the expansion phase, small cap businesses grow so investing in them gives a high yield. Foreign and upcoming markets will be a good idea to invest inas rhey hedge against a declining dollar.

In the peak phase, sell bonds and junk commodities and increase the proportion of cash and fixed income. Adding gold to your portfolio would be a good idea then.


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