Business Cycles and Economic Policies - Explained with Examples
Business Cycles and Economic Policies 1. Characteristics of a Business Cycle A business cycle refers to the fluctuations in economic activity that an economy experiences over a period of time. It consists of expansions and contractions in GDP and other macroeconomic indicators. Business cycles are recurrent and periodic but not regular. They affect employment, output, income, and prices. They are global in nature, often influenced by international trade and finance. Governments use policy tools to minimize their adverse effects. 2. Phases of a Business Cycle Expansion: Increase in GDP, employment, investment, and income. Peak: Economy reaches its maximum output; inflation may rise. Recession: Decline in GDP for two consecutive quarters; rising unemployment. Trough: Lowest point in economic activity; recovery begins. Recovery: Economy begins to grow again, leading into the next expansion. Example: India...