OPPapers.com Essay Index >> Miscellaneous >> Business Cycles
We have many free term papers and essays on Business Cycles. We also have a wide variety of research papers and book reports available to you for free. You can browse our collection of term papers or use our search engine.
Business Cycles. When a country is experiencing instability, governments would attempt
to alter the current economic situations by implementing policies. ...
... This paper is a brief description of how income distribution, poverty,
and discrimination are a direct result of business cycles. ...
... Investment expands. A new cycle is under way. (msnencarta.com) (http://www.keystone-
web.com/buscycle.html) Business cycles do not always behave as neatly as ...
... Recessions, Depressions, and Business Cycles The exact cause of business cycles
is one of the biggest problems in economics. There are several explanations. ...
... be Keynesian. The exact cause of business cycles is one of the biggest
problems in economics. There are several explanations. The ...
Submitted by fishbonelai on January 14, 2008
Category: Miscellaneous
Words: 1990 | Pages: 8
Views: 86
Popularity Rank: 98,024
Average Member Grade: N/A (Add a Comment / Grade this Paper)
When a country is experiencing instability, governments would attempt to alter the current economic situations by implementing policies. Governments control fluctuations in economic activities through three policies when necessary; fiscal, monetary and supply-side policy. Fiscal and monetary policy alters the economy by creating changes in the aggregate demand. On the other hand, supply side policy changes the aggregate supply in the economy.
Fiscal policy stabilizes the economy via changes in government spending or tax. (Sullivan and Sheffrin, 2006) In a recession, an expansionary fiscal policy is most suitable to recover the economy from its slump. The government would increase government expenditure and decrease taxation to increase the GDP level.
With the aid of a diagram, an increase in government expenditure would increase the aggregate demand (AD), thus shifting the AD curve to the right (AD1). This would then increase the GDP level (yp). Similarly, a reduction tax would also increase AD, shifting the AD curve to the right. The increase would also result in an increase in the GDP level.
Diagram XXX Adapted from (Sullivan and Sheffrin, 2006)
On the contrary, contractionary fiscal policy aims to stabilize the economy during a boom, when there is excessive economic growth, leading to "overheating". (Sullivan and Sheffrin, 2006) The government would decrease government expenditure or increase tax rates to decrease the aggregate demand. When there is a decrease in government expenditure, AD would decrease thus shifting the AD curve to the left (AD1), causing a decrease in overall GDP level (yp). Correspondingly, an increase in tax would also decrease the average household income, thus leading to a fall in consumption spending. This causes a decrease in the aggregate demand. This is shown in the shift of the AD curve to the left, causing a decrease in GDP.
Diagram xxx Adapted from (Sullivan and...
You must Login to view the entire paper.
If you are not a member yet, Sign Up for free!