Economic instability

7x puncte

categorie: Economie

nota: 10.00

nivel: Facultate

In reality, the business cycles are not predictable phenomena. The economy is not a pendulum, even if it was frequently compared to a pendulum, swinging at specific intervals to reach equilibrium. Economy experiences upswings and downswings but of widely varying length, intensity and frequency: no two recessions are exactly alike, nor are two expansions and therefore, economic evolutions suffer fr[...]
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In reality, the business cycles are not predictable phenomena. The economy is not a pendulum, even if it was frequently compared to a pendulum, swinging at specific intervals to reach equilibrium. Economy experiences upswings and downswings but of widely varying length, intensity and frequency: no two recessions are exactly alike, nor are two expansions and therefore, economic evolutions suffer from a high degree of unpredictability.These fluctuations in economic activity are irregular and they are likely to result from recurrent shifts of the aggregate supply and demand curves.

All of the influences on macro outcomes are transmitted through aggregate supply or aggregate demand and the economy gravitates towards that unique combination of output and price level called macro equilibrium.Competing economic theories try to explain the shape and shifts of the aggregate supply and demand curves and specific theories tend to emphasize demand or supply influences, thereby explaining the business cycle. Therefore, the central concern of macroeconomics is the study of the business cycles and the market forces that might affect them as well as the major problems they create - unemployment and inflation.

1.1. The Four Phases Of A Business Cycle
The upswings and downswings of the business cycle are gauged in terms of changes in total out put, that is, changes in real GDP - the total market value of all goods and services produced in one year, with market value adjusted for changing prices. An economic upswing, or expansion, refers to an increase in the volume of goods and services produced. An economic upswing, or expansion, refers to an increase in the volume of goods and services produced. An economic downswing, or contraction, occurs when the total volume of production declines.

Changes in employment typically mirror these changes in production.
Even if these fluctuations are so irregular, they all have the same four phases and, perhaps surprisingly, they are called cycles (figure 3.3.). The four phases are: recession, trough, expansion, peak (figure 3.2.).Figure 3.1.: Business Activity in the USA, 1835-1988, Source Ameritrust Corp., Cleveland.
Figure 3.2.: The Four Phases of a Business Cycle.
Figure 3.3.: The Elements of a Business Cycle.
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