Inflation and Economy Essay

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“Business Cycles and Recessions (1980-2010)”
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1 business cycle; 1980-2010 2 1980-2010 3 1980-1982 4 1990 5 1990-1991 6 “ “ 7 1970-2010 8 “ “ 9 bibliography 10 rubric

A business cycle is the recurring and fluctuating levels of economic activity that an economy experiences over a period of time. In earlier times cycles were thought to be predictable and extremely regular but in this day and age cycles have been extremely irregular in degree of frequency, magnitude and length of time. The main constant with business cycles is that they go through periods of growth and contracting. Business cycles are affected by different variables, production of goods utilization of product and allocation of the revenue earned from the distribution of these products. Recession is the period of general economic decline: expansion has a downward turn and contracts, and therefore leading to the decrease in production therefor decreasing the amount of funding and revenues. When this occurs the Gross National Product or GDP is affected by reduction therefore having a domino effect on the economy. When the GDP reduces for two consecutive quarters or 6 months a recession has occurred. High unemployment decrease in sales, and minimal wages also occur creating a downward spiral.

1980-2010 list of recessions

graphs for recession 1980-1982

The main cause of a recession is inflation, a general rise in prices of goods and services over a period of time whereas a smaller amount of goods are purchased with the same amount of money. This occurs in the economy for various reasons: increased production costs, more energy costs and increased national debt. As this occurs people tend to "tighten their belt" with finances less spending and more conservation of money which eventually reflects on businesses by curtailing sales, expenditures and increasing layoffs and therefore raising the levels of unemployment. Specific fiscal policies were introduced by the President and legislated by Congress during the period between 1980 and 2000. The main objective of the president was to reduce government spending, reduce taxes in labor and capital rates, reduce regulation and reduce inflation by controlling growth of the money supply. The thought that if they did this, objectives the goal to increase saving and investment, increase economic growth, balance the budget, restore healthy financial markets, reduce inflation and interest rates would be met. These policies were instilled by Ronald Reagan and labeled "Reagonomics" . Although not all goals were met and some ideas were not as powerful as they thought they would be: there were significant changes in the economy that lasted through the Carter administration at a slower rate of change. Monetary economic growth was erratic but in the scope of things had a good net gain. The unemployment rate declined from 7.0 in 1980 to 5.4 in 1988, the rate of new businesses increased but the bank failures also increased. The United States economy endured economic turbulence despite favorable conditions: it was considered "creative destruction" that is characteristic of a healthy economy. (9). The United States endured the longest expansion of economy in peacetime - the economy transitioned from stagnation and malaise during 1973-1980 to a higher growth rate and lower inflation.

Graphs 1970 -2010

As a recession resolves and economy recovers: when the unemployment remains high or continues to increase over a period of time economists refer to this as a jobless recovery. Businesses are not confident that the recession is truly over and remain very cautious. Instead of hiring new employees they tend to increase hours for the already employed therefore not decreasing unemployment levels. An example of this occurred during the 1990's when the recession was over and economy recovered the numbers
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