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The basic idea behind economic cycles is that they're more than just mere fluctuations in economic activity and are significant enough to be "widely diffused over the economy." . A short term decline in economic activity has historically been observed to be followed by a short term gain in economic activity. Observed over longer periods, the highs and lows average out to form the trend, or average, economic growth rate. The Economic Cycles Theory holds that although this trend growth rate is subject to change, it has remained relatively steady in the past, thus theoretically indicating the general rate of economic growth that we can expect to see in the mid-term future. No attempt is made by Economic Cycles Theory to describe economic activity during extended periods of decline, only growth.
Key features of an economic boom:
full capacity of demand fo show
Key features of a recession-
While the economy as a whole is negatively impacted by economic cycles, certain companies and industries are particularly sensitive to changes in the overall state of the economy. Manufacturers of durable goods like cars, appliances, and electronics are among the most impacted. When times are bad, people tend to cut back on the purchase of durables, as the ones they already have can generally last through the recession. At the same time, durables usually benefit the most from booms. As disposable income increases, consumers are likely to go out and buy that new car they've been holding out on. In addition to manufacturers, financial institutions are susceptible to declining demand for financial services and an overall decrease in the amount of money flowing through the economy.
Commercial Real Estate Service Firms
Other Areas of Discretionary Spending
On the other hand, certain goods are relatively insulated from the impact of economic cycles. Goods that have a relatively inelastic demand with respect to income are generally shielded. For example, food has a very inelastic demand. No matter how bad the economy gets, people have to eat and will continue to purchase food. This is particular true for staple foods and goods like insulin and bread. In addition, when the economy improves, people rarely eat more or buy more necessities.
Food manufacturers and retailers
Required Medicine and Medical Equipment
Milton Friedman has said that economic cycles aren't really "cycles" that there is no clear beginning and end unlike the seasonal cycle for, among other economic activity, retail sales and seasonal credit cycle which peak before summer and trough after.
The Chicago School, which is often seen as neo-classical or monetarists, emphasizes the correlation between the "credit cycle" and the business cycle. These economists argue that interest rates act as the general price level for money and that the monetary causes the shifts in the business cycle. This school of thought believes that correct manipulation of monetary policy, mostly through the Federal Reserve can eliminate the business cycles. The thinking goes that by correctly increasing and decreasing the supply of money at the right time, the toughs and bubbles can be avoided.
Keynesian Theory argues that because price levels and wages (price of labor) are relatively rigid in the short run, expansion in spending will alter real output. This is in contrast to classical economic theory which states that changes in government spending will not alter economic conditions since such spending must be offset by equally large, albeit future, taxes. However, Keynes argued that all actions do occur in the short run, where prices are rigid and so government spending can effectively stimulate the economy. Thus, Keynesian Theory advocates for extensive deficit spending which, aided by a "money multiplier" can reverse economic downturns which have occurred due to a fall in consumer consumption. In this way, Keynes saw the government as temporarily stimulating the economy by replacing the drop in spending from consumers. According to this theory, the government spending must be deficit and not balanced by equivalent taxing.
This school of thought disagrees with traditional economics in that there is no linear equilibrium that the economy trends towards. Instead, society is filled with a series of individuals who use rule of thumb judgments based on incomplete information sets. The result is a dynamic, chaotic system with no clear distinction between micro and macro economics. Eric Beinhocker views economic cycles from a network and game theory perspective. This view re-frames cycles in terms of evolutionary growth rather than having a discrete beginning and end.
That's an astute answer to a tricky question
Recessions of the economy come in many shapes and sizes. However, economists tend to refer to the following four shapes the most: