The business cycle is like a roller coaster and this roller coaster definitely has its dips and peaks. In the cycle there are expansionary periods, peaks, downturns, and troughs. Each one is part of and essential in the cycle. Like a roller coaster you will go up and reach a peak and then you will have to drop. Although just because you drop does not mean you will reach the lowest point of the ride. Just like a coaster the business cycle has its high peaks and plunging drops.
So lets start the ride. I the business cycle there is an expansionary period. During this period there is an increase in demand because people are spending and wanting more of goods. Since this is happening Gross Domestic Product (GDP), is increasing which means that there is more output. Because there is more output there is a low rate of unemployment. The reason there is a low rate of unemployment is because businesses need more workers to produce the goods or provide the services. There will be a decrease in savings because people are spending their money. Although there is a decrease in purchasing power because inflation in increasing so prices are rising. When you are on a roller coaster you will go up and these expansion periods last longer than recessions do. Although roller coasters do not last months the idea is still the same.
Finally we have reached the peak and everything is doing fine. At this point unemployment rates are at its’ lowest. Prices are at their highest yet people are still spending their money and saving rates are going down. There are high rates of aggregate supply and demand. Inflation rates are at their highest as well and that high inflation rate will impact consumption. But once you reach a peak this will signify the beginning of a downturn. So when you are on a roller coaster and you are at the highest peak and you can start seeing over the edge, you know that you are about to drop just like in a business cycle.
Now that we are at a downturn these are...
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