Economic Business Cycles
A business cycle by definition is the movement of economic activity that occurs around the growth trend. Many events in society cause these fluctuations to occur. The business cycle is divided up into four stages. They include the peak, the downturn, the trough and the upturn. The peak represents the output being high or the Gross Domestic Product (GDP) being high. The economy is booming at this time. As the expansion peaks there is the downturn. This is when the economy begins to fall. If the real GDP output declines for two consecutive quarters then we call it a recession. A big recession is what we call a depression. At the lowest point at the end of the recession or depression is the trough. As expansion begins again we experience the upturn in economic output. An expansion is the opposite of a recession. The upturn must last two consecutive quarters to be called an expansion. Before the Great Depression of the 1930’s the general economic thought was that these phases of the business cycle were normal. The must just be accepted and not messed with. During the Great Depression production of goods and services fell by 30 percent. This led to a new view of these economic cycles. Ever since the Grea
There are two schools of thought in economics: the Classical and the Keynesian. The classical school of thought was more present before the Great Depression and World War II. These economists favor lassiez- faire politics or that of which the government does not intervene with. These economists believed that the fluctuations in the economy was normal and should be left alone and accepted. The Keynesian school of though is the complete opposite. They want the government to intervene and control the fluctuations. They believe that drastic expansions and recessions are symptoms of underlying problems in the economy. I agree with the Keynesian school of thought because that is what the government does now. It is very involved in the control of the business cycles, unemployment, economic growth and inflation. Proof can be seen on the figure 22-1 on page 448 of the textbook. Ever since the Great Depression and World War II the government has been involved in the economy and the fluctuations have been controlled. Overall, it can be plainly seen that the Keynesian school of thought is more correct and persuasive in today’s economics. The U.S. unemployment rate is the percentage of people who are old enough and able to work but that are not currently employed. There are four types of unemployment. The first is frictional unemployment, which is caused by people going from job to job. Cyclical unemployment is due to the changes in the business cycle. Structural unemployment is caused by changes in labor needs. An example of structural unemployment is when labor that is usually done by a human is changed and done by a robot. The last is seasonal unemployment, which is when j
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Approximate Word count = 1132
Approximate Pages = 5 (250 words per page double spaced)
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