Question

Where are we in the current U.S. economic business cycle? I want you to decide approximately where you think we are. What measures are you using? Did you look at current GDP numbers or unemployment numbers? What about the stock market?

This is not a right or wrong type of question, I just want you to give thought as to where you think we are. Find resources or charts on the web and post them. One thing to keep in mind is that we do not always move from left to right on these business cycle diagrams. Meaning, the economy does not always smoothly go from trough to peak, then back to trough, then to a new bigger peak. It can actually move from right to left. It may start to find a peak, and then move back down a bit to the left. This will become more clear as we talk about the Federal Reserve later in the course. Just know, that we can stagnate in the business cycle and also have small movements that are right to left on those graphs.

Answer 1

We study business cycle to measure gross domestic product or to measure economic activity in the economy.There are four phases of business cycle ,expansion, peak ,recession and trough.Spending by  the consumers has a big effect on the economy.When consumer demand increases , production increases too and the economy expands .As the economy expands,generally inflation increases and unemployment becomes low.Interest rates rises.This is because the FED wants to keep the rate of unemployment low and to stabilize price level. So it raises the interest rate in order to keep the price level stable.When interest rate and inflation rises and unemployment is low GDP falls and recession starts.When GDP falls , inflation decreases and the FED reduces interest rate in an attempt to stabilize price level.The banks lend at a lower cost and consumers spend again.The stock market shows the same trend as business cycle because when consumers spend more ,there is high corporate earnings and equity prices increases.In the economy ,we have leading indicators and lagging indicators.Stock market price is a leading indicator and consumer price index and the period that unemployment extends , are lagging indicators in an economy . At present , the unemployment rate is low ,interest rate is high and stock market prices are high which suggest that we are in the late expansionary phase.We have used indicators like GDP numbers,unemployment rate and stock market prices to come to the conclusion.In  2019, US GDP will be $21.8 trillion,in Feb 2019,US unemployment rate was 3.8%.The stock market was up 22%in 2017.