END OF BUSINESS CYCLE Essay Example | Topics and Well Written Essays - 750 words

END OF BUSINESS CYCLE - Essay Example Most economist believe that the country was in a recession as the country had posted two quarters of negative growth and was not anywhere close to the 2.5% or 3% growth it had achieved in the previous year 2000. The year 2007 ended with a 0.6% GDP as compared to 4.9% in the 3rd quarter. 2008 started with the 0.9% at the end of the 1st quarter. The last two quarters show no negative growth so technically the economy is not in a recession. The above table shows a slight increase in the GDP rate for the 1st quarter of 2008 as compared to the fourth in 2007. The marginal uptrend is the result of Government expenditure; exports and the positive trend in personal consumption expenditure .The last two quarters are a classic example when the economy is underutilizing its labor and capital. The economy is slowly shrinking away from its potential and this can lead to a recession. The Personal consumption expenditure though not negative has clearly failed to grow in the 1st quarter leading to inventory accumulation. This will force businesses to cut back on production in an effort to reduce inventories. Unemployment rises as workers are laid off and incomes reduce. This further brings down consumption spending, investment spending on machinery, and plant. Businesses adopt a pessimistic approach worried about future sales and demand.3 The above figures can be achieved only if more disposal income is available to the common person, which will in turn increase spending, and demand for goods and services. The forecast also rings bells of the steep rise required in the GDP during the forthcoming quarters of the year. 2. Pick two factors cited in the Economist article that you think will have the most impact on future business cycles Explain why they are important and whether you think they will contribute to more severe or less severe business cycles? We can divide the above-mentioned factors into two major categories Management factors