Question

1. Describe the Austrian Business Cycle Theory. Explain step-by-step how this theory attempts to describe the boom-bust pattern of the business cycle.  What is malinvestment, and what causes malinvestment to occur?

Answer 1

In economics, a recession is a business cycle contraction when there is a general slowdown in economic activity or a decline in gross domestic product(GDP) for two or more consecutive quarters.

Five things that happen during recession

1) Manufacturing - In recession manufacturer s receive orders months in advance.That's measured by the durable good order report.When manufacturers stop hiring ,it means other sectors of the economy will slow.

2) Consumer Demand - A fall-off in consumer demand is normally culprit behind slowing growth. As sales drop off, businesses stop extending .Soon afterward they stop hiring new workers.

3) Unemployment-A recession is destructive .It creates wide -spread unemployment,sometimes as high as 10 percent.

4) Business- All the businesses go bankrupt.And market slowdown

5) Society- In many recessions,people lose their homes when they can't afford the mortgage payments.Yonug people can't get a good job after school.That throws off their carrer.