The economic output of a country is periodically fluctuated in market cycles (Eusepi, 2011). Each period consists of four phases: expansion, peak, contraction and drilling. Market cycles are marked by alternate economic growth and recession times.
Economic development happens in a nation and companies prosper during economic expansion. Businesses are expanding their operations and creating new jobs. An economic contraction, on the other hand, slows down a country’s economic activity. This is reflected by indicators such as high inflation rates and a decline in company profits (Hubbard & O’ Brien, 2010). To cope with these downturns, businesses opt to retrench and halt hiring new staff with an aim of cutting down the operation costs leading to increased unemployment in the economy.
These changes in business cycles are caused by various factors. Some of them may include increase in interest rate, fiscal policy, monetary policy, and changes in the exchange rate. Fiscal and monetary policies are put in place to regulate money supply and government spending in the country.
All in all, business cycles are inevitable in any economy. It is upon the economists and policy makers to come up with measures that minimize the effects of business cycle fluctuations. This will help a country prevent the occurrence of an economic crash as was experienced during the 2007/2008 financial crisis that led to massive loss of jobs.
Eusepi, S., & Preston, B. (2011). Expectations, learning, and business cycle fluctuations. The American Economic Review, 101(6), 2844-2872.
Hubbard, R.G., & O’ Brien, A.P. (2015). Essentials of economics, 4th Edition. Pearson.