ABC country was facing a downturn in its economy. All the economics factors, such as production, prices, savings, & investments, of the country started decreasing. In the initial phases of downturn, businessmen were not able to recognize it. They considered it minor fluctuations in the economy, which could be easily handled by Market forces. Therefore, they continued to produce goods and services at the same rate as they were doing earlier. As a result the supply of goods and services exceeded the demand. Gradually, businessmen realized that they had overinvested. This problem of one industry spread in other industries, due to interlink among different industries. At this time, businessmen stopped any type of further investment in consumer and capital goods. Consequently, they started reducing the cost on labor, machinery, furniture and other factors of production. As a result, various economic factors, such as consumption, savings, and employment started decreasing. In addition, debtors were not able to repay their debts and creditors were not ready to lend more money. Apart from this, individuals and businesses were not ready to invest in stock markets. Many week organizations left industries or dissolved.at this point of time, the economy had reached its bottom level and from this point, individuals and organizations tried to become optimistic. Therefore, organizations started hiring employees at low wages. Employees accepted the amount of salary provided to them by organizations because they wanted to fulfill their basic needs. In addition, consumers also had an opinion that the price of products and services would not fall now. Therefore, they started increasing their consumption rate. This consumption rate stimulated the demand and consequently the production. As a result, the investment and bank credit also increased. The economy started running back on the growth.
Questions:a. From a conceptual perspective, the business cycle is the upward and downward movements of levels of GDP (gross domestic product) and refers to the period of expansions and contractions in the level of economic activities (business fluctuations) around a long-term growth trend. Elucidate the phases of business cycle explained in the case above.
a. Exemplify the main causes of recession in ABC country
Running head: BUSINESS CYCLES1 Business CyclesNameInstitution BUSINESS CYCLES 2Business Cyclesa. Phases of Business Cycles The term business cycle has a few distinct implications in business….