Question

Explain what is happening during each phase of the cycle with: I. output, II. employment III. and inflation

Answer 1

Answer:

During each phase of the economic cycle of Recession and Expansion, the following economic variables fluctuate, accordingly:

I. Output: During Recession, production output reduces.  But, during expansion, product output rises with rising income, employment, and even stable inflation.

II. Employment: During phases of economic Expansion, employment rises, while it contracts during the phases of Recession.

III. Inflation: Due to rising income and output during economic expansionary periods, inflation rate also rises.  It reduces when the economy enters a recession.

Explanation:

Business or Economic Cycle describes the recurrent, but not periodic, sequence of changes in the aggregate economic activities of a nation.  It usually cascades between the spectrum of expansion and recession.  This means that there is an alternation of the phases of economic cycle between expansion and contraction (recession) when the aggregate economic activities may rise or decline due to the equal movement of economic variables like the GDP output, employment, income, and sales.