Business Cycle Essays - Geoffrey H. Moore, Recessions,

BUSINESS CYCLE A business cycle is the periodic but irregular up and down movements in economic activity, measured by fluctuations in real GDP or gross domestic product and other macroeconomics variables. It is not a predictable or repeating phenomenon like the ticking of a second hand on a clock. Its timing is random and unpredictable. A business cycle describes the phases of growth and decline in an economy. A business cycle is a sequence of four: contraction, trough, expansion and peak. A contraction is a slowdown in the pace of economic activity, a trough is the lower turning point of a business cycle, usually a recession, where a contraction eventually turns into an expansion, expansion is a speedup in the pace of economic activity, and finally the peak which is the upper turning of a business cycle. ?The goal of economic policy is to keep the economy in a healthy growth rate ? fast enough to create jobs for everyone who wants one, but slow enough to avoid inflation. Unfortunately, life is com plex and many factors can cause an economy to spin out of control, or settle into a depression. The most important, factor is confidence ? that of investors, consumers, businesses and politicians. The economy grows when there is confidence in the future and in policymakers, and does the opposite when confidence drops?, states Kimberly Amadeo of Guide.com. The National Bureau of Economic Research or NBER analyzes economic indicators to determine the phases of the business cycle. The BCDC or Business Cycle Dating Committee uses quarterly GDP growth rates as the primary indicator of economic activity. The Bureau also uses monthly figures, such as employment, real personal income, industrial production and retail sales. Supply and demand can affect the business cycle. Consumers are confident in buying there will be income in the future from more employment opportunities, higher home values and stock price increases. Even a small inflation can signal demand. Demand increases employment opportunities which stimulate even more demand. This is the part of the business cycle we would all like to live in ? the Expansion Phase. Unfortunately, a recession occurs and if the contraction is severe enough then a depression could occur. The difference between a recession and a depression can be found in their definitions. A recession is a time when business activity has reached its peak and starts to fall until the time when business activity bottoms out. A depression is a recession that lasts longer and has a larger decline in business activity. Thus the difference can be found by looking at the real GDP which declines by more than ten percent during a depression and less than ten in a recession. The Concise Encyclopedia Economics article on business cycles gives a great deal of information in laymen?s terms. We know that some years, the economy is booming with growth and low unemployment rates while other years the economy and unemployment rate is not so great. The first pe rson to identify this as a Business Cycle was Arthur Burns and Wesley Mitchell. They wrote a book in 1946 titled Measuring Business Cycles which pointed out one of their key insights that many economic indicators move together. The term business cycle tends to be misleading because a cycle is a flow that continues with some timing or predictability. The business cycle has no set timing in its processing. As there is no regularity in the timing of the business cycle, one would think that there is not a reason why cycles occur in the first place. Business cycles do occur because disturbances to the economy of one sort or another push the economy above or below full employment. We, as an economical society, have watched this business cycle for over a century which gives some insight for future research and predictions. An essential component of our understanding of the business cycle is our ability to distinguish between leading, coincident and lagging indicators in the business cycle. In doing so, we can deter the easy distraction of ninety-nine percent of economic data that cannot be neatly place into any of these categories. In a typical business cycle, the economy grows and if neglected the inflation will rise.