Macro Economics - Business Cycles

Max: Hi I’m Max Lessins. This is Crash Course for economics and today we’ll be discussing the Great Recession, focusing on the fiscal and monetary policies used to recover from the 2008 economic meltdown.

go through cycles of expansion, recession and recovery. Monetary and fiscal policies can affect the timing and length of these cycles. In the expansion phase, the economy grows, businesses add jobs and consumer spending increases. At some point, known as

Another important factor to consider when starting a business is the “business cycle.” The business cycle is the fluctuations in economic activity that an economy will experience over a period of time. We have experience may business cycles in the United States. We refer to them as expansions and recessions. In an expansions, the economic outlook is good and growth happens, without inflation. Recessions are when the economy is shrinking and the determination factors for a recession include unemployment, low industry production, decrease sales and lower incomes. Since 1854, The United States has experienced 33

Government activities have a powerful effect on the US economy in stabilization and growth which is the most important are. The federal government guides the pace of economic activity, attempting to maintain steady growth, high levels of employment, and price stability. They do so by adjusting spending and fiscal policy- tax rates- or managing money supply and controlling use of monetary policy-credits. It slows down or speeds up the economy’s rate of growth, which affects the level of prices and employment. After the Great Depression in the 1930’s, recession (high unemployment) was

Hint: Business cycles fluctuate over time around the linear trend of gross domestic product (GDP).

An economic recession occurs when the economy is suffering, and unemployment is on a rise. A drop in the stock market and a decrease in the housing market will also affect the economy due to a recession. Higher interest rates affect the economy constrain liquidly or the cash available to invest in stocks and businesses. Inflation alludes to the rise in prices of goods and services which also puts a strain on the economy further adding to a recession. Businesses were lost and consumer spending dwindled the only category that remained safe was healthcare. The economic meaning of a recession is a decline in the Gross Domestic Product (GDP) consisting of two consecutive quarters on a decline. If the economy is bad consumers are less likely to spend money on goods and service. The effects of a declining economy forced the government to create monetary

Boom: - during the boom stage of the business cycle the economy is performing its best. Demand, production and sales figures are high. To meet the high levels of demand and production the business has to create new jobs; by doing this the percentage of the nation has money to spend on goods and services. However as businesses produce greater profits higher wages can be paid to employees growing their disposable income. People& businesses in the economy are allowed to spend money as there is a great business available for them.

The 2008 Great Recession helped in restoring economic growth and lowered unemployment. Both fiscal and monetary policies are related ways use to increase the aggregate demand and aggregate supply. So, a shift in the aggregate demand curve to the right is expansionary fiscal policy meaning government spending has to exceed (2012). The G- component aggregate demand help to spend, allowing the C- component of aggregate demand to increase. On the other hand, the monetary policy promotes spending, investments, and lending increasing aggregate demand. During the downturn, the systems concentrate on growing demand total while the supply strategy looked for long-term growth in productivity and efficiency (Pettinger, 2012).

The Business Cycle is “…the "ups and downs" in economic activity, defined in terms of periods of expansion or recession” (Dr. Econ). Expansion is the period in which employment, production, sales and income increase. Likewise, the contrasting contraction is when the actions above decrease. In order to keep track of the fluctuations of the US’s business cycles troughs and peaks, the National Bureau of Economic Research was created. The NBER is comprised of a group of economic researchers currently led by president James Poterba. The members are usually specialized in the field of business-cycle research, and are chosen by the president. The NBER was founded in 1920 as a private non-profit “…non-partisan organization dedicated to conducting economic research and to disseminating research findings among academics, public policy makers, and business professionals.” (http://www.nber.org/info.html). The NBER dating committee was formed in 1978, and plays an important role in the US as an examiner of broad measures of economic activity, and the most reliable source of the beginning and end of recessions in the U.S. This is accomplished by gathering as much data on a given period of economic activity.

All of these factors have an enormous impact on my selected business (Barclays) as the economy goes from growth and decline. As well as many others, Barclays is majorly affected as it is in the financial industry. These different factors appear throughout what is called the ‘Business Cycle’. The cycle shows the fluctuation of the activity within the economy over a period of time and consists of 4 main stages; as well as many others,

The economy goes in business cycles where it has recurring period of economy-wide expansion (growth) and periods of contraction (shrinking). These cycles are often measured by the increase or decrease in the gross domestic product (GDP). The economy produces not just goods and services to satisfy its members but also jobs, because more people participate in the market economy by trading their labor, and most rely on

The economic meaning of a recession is that the gross Domestic Product (GDP) has declined for two or more consecutive quarters. Unemployment rises, housing falls, stocks fall and the economy is in trouble. Whenever the government sees that the economy is entering a recession it is important for it to act. The U.S acted in two ways during the Great recession of 2008 through fiscal and monetary policies. Renaud Fillieule identifies that “ Monetary and credit expansions have been the main tools used by the U.S. government and central bank to try and recover economically from the Great Recession of 2008” (Fillieule r, Pg. 99 2016). These Keynesian policies are debatable among economist, none the less they were implemented and put the U.S on the road to recovery.

Recession cycles are thought to be a normal part of living in a world of inexact balances between supply and demand. What turns a usually mild and short recession or "ordinary" business cycle into an actual depression is a subject of debate and concern. Scholars have not agreed on the exact causes and their relative importance. The search for causes is closely connected to the question of how to avoid a future depression, and so the political and policy viewpoints of scholars are mixed into the analysis of historic events eight decades ago. The even larger question is whether it was largely a failure on the part of free markets or largely a failure on the part of government efforts to regulate interest rates, curtail widespread bank failures, and control the money supply. Those who believe in a large role for the state in the economy believe it was mostly a failure of the free markets and those who believe in free markets believe it was mostly a failure of government that compounded the problem.

The two main models that draw most attention from the neoclassical period are the Solow model in the long run and the Real Business cycle incorporated with the Ramsey consumption or Euler equation in the short run. The Ramsey model in the short makes a more accurate depiction of what consumption and production in an economy would look like. The model in the short run follows a Dynamic stochastic general equilibrium; this type of model is more complex and allows for it to show economic growth in a closed cyclical model. The Ramsey model, which is the The Real Business Cycle Theory model in the short run, is far superior to the long run Solow model. However, the long run model by Solow has its benefits because it represents a closed economy producing one good with constant capital accumulation; yet, it fails to account for technological changes and other shocks that take place in an economy. This model is used over such a long period that it becomes a very theoretical generalization. Both these models explain growth in the economy, but the short term Real business cycle theory is a more accurate representation of economic growth as it depicts a direct correlation between consumption and production and accounts for economic shocks.

Timing of the business cycle is not predictable, but its phases seem to be. Many economists site four phases—prosperity, liquidation, depression, and recovery. During a period of prosperity, a rise in production leads to increases in employment, wages, and profits. Obstacles then begin to obstruct further expansion. Production costs can increase, helping create a rise in prices, and