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Conceptualization of the Business Cycle


The business cycle refers to the many periods in which an economy alternates between phases of expansion and decline. Various characteristics characterize the business cycle. During the course of the business cycle, the economy experiences periods of contraction and expansion. This occurs at irregular intervals that are difficult to anticipate. The business cycle is also distinguished by periods of economic expansion and contraction.



Characteristics of the Business Cycle, the Behavior of Real Gross Domestic Product, and the Varieties of Inflation and Unemployment Throughout the Cycle



As previously stated, the business cycle is characterized by numerous characteristics that distinguish one phase from another. Throughout the business cycle, an economy travels through numerous phases. Each aspect of the economy has a substantial influence on employment, inflation, and GDP.



During periods of recession or sluggish economic growth, businesses are badly impacted. Typically, the production level is quite low. As economic conditions deteriorate, the total production of the economy falls (Zarnowitz 45). Consequently, numerous individuals lose their jobs. This increases the unemployment rate in the economy. Likewise, the decline in total output will result in a substantial decline in the amount of the gross domestic product. In other words, the economy typically suffers during difficult times. Due to poor business performance and unemployment, the disposable income of the population will decline. This drastically reduces their purchasing power, resulting in a decline in total sales for the economy. This contributes to an additional decline in total output.



During periods of robust economic expansion or expansion, businesses typically perform exceptionally well. The production level is often high and characterized by a rapid rate of expansion (Zarnowitz 56). Consequently, the output level is typically high. This creates jobs within the economy. Consequently, unemployment is typically low during economic expansions. As a result, disposable income increases. As a result, individuals will boost their spending. This drives economic expansion further.



Throughout the business cycle, businesses experience numerous phases. The transition phase from economic contraction or recession to robust economic growth is referred to as the trough. The economy has reached its minimum level of output at this point. Typically, the unemployment rate at this time is significantly higher than in previous years. At this time, the overall swales in the economy are likewise extremely low. In contrast, at the peak phase of the economic cycle, output levels are often at their highest. This company is often performing exceptionally well at this time. Consequently, unemployment rates are typically rather low.



Collect information on Australia's and America's real GDP growth, inflation, and unemployment rates over the past decade (since 2000). Tabulate and visualize the gathered data (To plot the series, you may use one Figure for each variable representing both countries). Compare and analyze the temporal behavior of these variables in Australia and the United States.



The Real Gross Domestic Product Growth, Inflation Rate, and Unemployment Rate for Australia and the United States (2001-2010).

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Real

GDP

Growth

(%) AU. 4.2 3.6 3 3.5 2.7 2.7 4.3 2.3 1.2 2.7

US 0.3 2.45 3.1 4.4 3.2 3.2 2 1.1 -2.6 2.8

INFLN

Rate (%) AU 2.1 2.8 2.8 2.3 2.7 3.8 2.3 4.4 1.8 2.9

US 2.8 1.6 2.3 2.5 3.2 2.5 2.9 3.8 -0.3 1.4

UNEP

Rate AU 6.4 6.3 6 5.1 5.1 4.9 4.4 4.2 5.6 5.1

US 4.8 5.8 6 5.5 5.1 4.8 4.6 7.2 9.3 9.7

Data sources

Historical Data Graphs for Index Mundi each Year. Australia: Market Information and Research Section, Department of Foreign Affairs and Trade. Statistics, Australian Bureau of Statistics, 2011.

Actual GDP Growth in Australia and the U.S.





The graph above clearly demonstrates that the real GDP growth rate for the United States increased between 2001 and 2004. Real GDP is predominantly used in data analysis because it accounts for changes in real prices (Boyes and Melvin 131). In 2003, Australia's real GDP growth rate fell from 4.2% to 3%. This grew to 3.5 the subsequent year before resuming its declining trend. However, between 2005 and 2006, the rate of real economic growth in Australia stayed unchanged. During this time, Australia's economy ceased to function. Eventually, the rate of increase resumed.



Since 2001, the United States' rate of economic growth has increased at a very rapid rate. During this time period, the U.S. economy was thriving due to a favorable atmosphere that encouraged economic activity (Gwartney 68). This kept the nation's increasing trend intact. Nonetheless, the economy experienced a slump beginning in 2007. During this time, the economy slowed, followed by a drop into recession (Mankiw 56).



Comparing Australian and American Inflation Rates





In the United States, the inflation rate fell between 2001 and 2002. After 2002, the tendency continued to move in the opposite direction until 2008. However, slight distortions occurred in 2004 and 2007. After 2008, the country's inflation rate declines dramatically.



Alternatively, during 2001 and 2002, the rate of inflation rose. Nonetheless, this level remained unchanged from 2002 to 2003. The preceding graph shows demonstrates that the inflation rate was not consistent after 2004. It increased and decreased with time.



United States and Australian unemployment





In the United States, the unemployment rate increased between 2001 and 2002. However, it then began to decline at a gradual rate until 2007, after which it resumed to climb at a very rapid rate. In contrast, the unemployment rate in Australia decreased at a slower rate from 2001 to 2008. Between 2008 and 2009, the unemployment rate in Australia increased. This tendency, however, was reversed after 2009, when the unemployment rate in the country began to decline.



Both graphs on unemployment and inflation rates demonstrate a very significant correlation between inflation and unemployment. In each time, the inflation rate and unemployment rate exhibit opposing patterns. In other words, an economy cannot simultaneously cut inflation while simultaneously increasing unemployment.



Sources Cited



Statistics, Australian Bureau of Statistics, abs.gov, 2011. Web.



Boyes William and Michael Melvin. Economics. 2006, in New York: Cengage Learning.



Macroeconomics: Private and Public Choice, edited by James Gwartney and others. 2010: New York: Cengage Learning.



Index Mundi. "Graphs of Historical Data by Year." Indexmundi.com, 2011. Web.



Gregory Mankiw, Principles of Macroeconomics. 2008: New York: Cengage Learning



Section on Market Information and Research, "Australia: General Information" DFAT, 2011. Web.



Zarnowitz, Victor. Business Cycles: Theory, History, Indicators, and Forecasting. New York: University of Chicago Press, 1996.

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