Week 4 Econ 212

Running head: Business Cycles and How They Work in Macroeconomics

Business Cycles and How They Work in Macroeconomics

By

Nandini Rajendran

Presented to

Nelson Lima

ECON 212

University of Phoenix

As is true with life, there is a cycle of creation and physical earthly consequences that create worldly up's and down's. We can apply this to weather and its affect on living creatures, migration and its affect cultural trends, or even communication and its affect on global communities unifying or disagreeing. We can employ this philosophy to business, because business moves in cycles of production that create up and down waves that are defined by fiscal growths and slumps over the course of time. The increases and decreases of business create variations of unemployment and inflation which are both largely tied to how an operating economy can be measured. The exact term used to define the measure of a given nation's economy is the gross domestic product (GDP). Thus the GDP reflects the current business cycle, which is measured over time.

The pattern of business cycles are not regular the way a “sin” or a “cosine” graph would look like. They move sporadically and have moments of erratic behavior and at other times can show a level of stagnation over a period of time. Since gross domestic product measures total production, the GPD is rising or is high, it reflects a time of business and production expansion. Because product is increasing, there is an implied demand, which mean more people have purchasing power from jobs and unemployment is low. When the GDP has reached a peak from growth, there begins a contraction phase in the business cycle. This contraction could lead into a recession which is defined as a GDP slump for two consecutive years. If the decline is continues past two years, then it is considered a depression. The steeper the drop in the GDP the more likely a recession will turn into a depression and this will also be reflected in...