Anonymous
Anonymous asked in Social ScienceEconomics · 8 years ago

The Business Cycle and Its effects?

What are the effects of the Business Cycle and its components on different of the economy?

So what does contraction and expansion 'booms and busts' mean to;

The Individuals, The Businesses and The Government?

Thanx for the help, this is for a year 9 commerce essay, so no time wasters please!

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  • 8 years ago
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    In a contraction, there is less demand for things in general. This means fewer opportunities for households to earn income by employment, and fewer opportunities for firms to earn income by selling goods and services. In the absence of a concurrent monetary expansion, prices will generally fall, so that households or firms with cash reserves will be able to buy more with these, but this will not generally offset the loss of income, and in the modern era monetary policy in the face of contraction has been generally expansionary.

    In an expansion, there is more demand for things in general. This means greater opportunities for households to earn income by employment, and greater opportunities for firms to earn income by selling goods and services. In the absence of a concurrent monetary contraction, prices will generally rise, so that households or firms with cash reserves find the purchasing power of these to generally erode, but this will generally be more than offset by the increased income.

    Both expansions and contractions serve as excuses for expanding the power of the state ("government"). In an expansion, the state uses the increased income to justify increasing levels of taxation (which, it is claimed, is more affordable); in a contraction, there is less income to be taxed, but the state insists that the government must act to combat the effects of the contraction, and therefore must increase tax rates, and increase deficit spending.

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  • 8 years ago

    No time to write - means you are in the decline side of the business cycle:)

    Business cycle:

    1st stage( introduction) : expansion- business starts and expand ( market penetration, introduction of new products etc.) .

    2nd stage( increasing return): Growth- business reaches a stable path of growth ( profit, market share etc. increases)

    3rd stage (Maximum and Constant return), : Boom- business reaches maximum potential and saturation is followed.( max earning, max share but growth declines)

    4th stage (Recession): decline - it is time when profit starts declining (due to competition, innovation phases out and followed by imitation, patent right is over , market share starts declining. Company has to go for diversification, introduction of new products, look for new market.If not depression will come and firm may have to go out of business and leave the market.

    - proper measures will lead to expansion again.

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