Stages of the Business Cycle

Topics: Monetary policy, Unemployment, Economics Pages: 2 (646 words) Published: August 9, 2010
Discuss the phases of the business cycle. What stage is the US currently in? How do you know? What tools can the federal government use to turn the economy around? A business cycle is identified as a sequence of four phases: * Contraction (A slowdown in the pace of economic activity) * Trough (The lower turning point of a business cycle, where a contraction turns into an expansion) * Expansion (A speedup in the pace of economic activity) * Peak (The upper turning of a business cycle)

A recession occurs if a contraction is severe enough... A deep trough is called a slump or a depression. Economic stimulus generally comes from two government sources. The Federal Reserve can lower interest rates — as it has been doing since September — to promote borrowing and spending. And Congress and the White House can lower taxes or boost spending to provide an added jolt. There’s widespread agreement that the Fed will have to do the heavy lifting to reverse the current downturn, and more rate cuts are all but certain. But those rate cuts can take months to work their way through the system and get the economy growing again. Tax cuts or spending increases could work more quickly, said Chad Stone, chief economist at the Center on Budget and Policy Priorities, a think tank that focuses on low- and moderate-income families. But Congress and the White House are only now getting around to such fiscal measures, even though the housing recession and credit crunch have been under way for months.

Now, the political pressure to act is rising. With economic data increasingly pointing to a downturn, voters are getting more worried about a recession. Some 47.5 percent of those surveyed think a recession is likely in the next year, up from 43.4 percent in the previous month's surveyaccording to a Reuters/Zogby poll released on Wednesday. And with the election season is in full swing, there is no dearth of proposals...
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