paper for eco 561
Learning Team Deliverable
Week 4
Learning Team Deliverable
TA-4D) Recessions seem to show up every so often and create economic hardship. One might think that macroeconomic policymakers could tame the business cycle and implement policies that would end recessions. Are recessions a necessary fact of macroeconomic life? If not, what would it take to eliminate them? If they are unavoidable, what types of business can benefit from them? How would a recession affect your firm? Economists identify business fluctuations in the economy by measuring the Gross Domestic Product (GDP) output. This fluctuation of output is called the business cycle. McConnell (2009) states, “Many economist prefer to talk of business fluctuations rather than cycles because cycles imply regularity while fluctuations do not (p. 984). The business cycle is distinguished by four phases: Peak, Recession, Trough, and Expansion, always starting with the peak (McConnell, 2009). The motion of the business cycle propels with alternating rises and declines in the level of economic activity with each portion varying on duration and intensity. At the peak of the cycle, business activity has reached a temporary maximum. Here the economy is at full employment and the real output is close to the economy’s capacity. With a price level rise during this phase, either resources or consumers will eventually dwindle causing a decrease in output. A decline in total output, income, and employment of the business cycle is called the recession period (McConnell, 2009). During a recession the GDP will decrease, manifesting a notable increase in unemployment which leads to economic hardships in many sectors of the economy. A macroeconomic policymaker could try to keep business activity at an equilibrium by reinforcing a policy framework for businesses to abide by. Examples to the policy framework could include pricing rules, along with having resources available to
Week 4
Learning Team Deliverable
TA-4D) Recessions seem to show up every so often and create economic hardship. One might think that macroeconomic policymakers could tame the business cycle and implement policies that would end recessions. Are recessions a necessary fact of macroeconomic life? If not, what would it take to eliminate them? If they are unavoidable, what types of business can benefit from them? How would a recession affect your firm? Economists identify business fluctuations in the economy by measuring the Gross Domestic Product (GDP) output. This fluctuation of output is called the business cycle. McConnell (2009) states, “Many economist prefer to talk of business fluctuations rather than cycles because cycles imply regularity while fluctuations do not (p. 984). The business cycle is distinguished by four phases: Peak, Recession, Trough, and Expansion, always starting with the peak (McConnell, 2009). The motion of the business cycle propels with alternating rises and declines in the level of economic activity with each portion varying on duration and intensity. At the peak of the cycle, business activity has reached a temporary maximum. Here the economy is at full employment and the real output is close to the economy’s capacity. With a price level rise during this phase, either resources or consumers will eventually dwindle causing a decrease in output. A decline in total output, income, and employment of the business cycle is called the recession period (McConnell, 2009). During a recession the GDP will decrease, manifesting a notable increase in unemployment which leads to economic hardships in many sectors of the economy. A macroeconomic policymaker could try to keep business activity at an equilibrium by reinforcing a policy framework for businesses to abide by. Examples to the policy framework could include pricing rules, along with having resources available to
References: Harvey, J. (2011). Why do recessions happen? A practical guide to the business cycle. Retrieved from http://www.forbes.com/sites/johntharvey/2011/04/18/why-do-recessions-happen-a- practical-guide-to-the-business-cycle/ on October 18, 2013. McConnell, C. (2009). Economics, principles, problems, and policies (18th ed.). New York: McGraw-Hill Company. National Center for Policy Analysis. (2001). Economic Problems of Deflation. Retrieved from http://www.ncpa.org/sub/dpd/index.php?Article_ID=7473 on October 20, 2013 Bernanke, G. B. S. (2002). Deflation: Making Sure "It" Doesn 't Happen Here. The Federal Reserve Board http://www.federalreserve.gov/boarddocs/speeches/2002/20021121/default.htm on October 20, 2013.