Macroeconomics

MACROECONOMICS 1

Institution Affiliation

is a branch of economics that studies the aggregateeconomy and how it reacts to various variables such as inflation,rate of employment, national income and the gross domestic product(Kydland, 1995). The volatility of the economy can be attributed tonumerous factors. Assuch, there are specific issues that areresponsible for the prevailing economic conditions (Banerji &ampAchuthan, 2013). This paper analyzes the business cycle and themacroeconomic conditions that are responsible for each stage of thebusiness sequence.

There are four major phases of business cycle. Economic growth is thefirst stage and it is witnessed when real output increases in theeconomy. The second stage is known as economic boom. This phase ofthe cycle is characterized by swift growth of the economy that tendsto be inflationary (Kydland, 1995). Additionally, it is unsustainablein the end. Economic downturn, on the other hand, is experienced whenthe growth rates diminish and the economy is headed towardsrecession. The last phase of the businesses cycle is recession. Atthis stage, there is negative economic growth and a substantialdecline in the real output (Banerji &amp Achuthan, 2013).

There are various causes of the business cycle. Interest rate is oneof the factors taken into consideration when analyzing changes in thebusiness cycle (Mankiw, 2014). This is because the rates affectconsumer spending as well as economic growth. This is likely toculminate in increased spending and economic growth. Acceleratoreffect states that investment is dependent on the rate of economicgrowth. A decline in the growth rate will lead to a reduction ineconomic progression. Finally, the multiplier effect states that adecline in injections may lead to a fall in the gross domesticproduct (Mankiw, 2014).

References

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Banerji, A., &amp Achuthan, L. (2013).&nbspBeating the businesscycle: How to predict and profit from turning points in the economy.New York: Crown Business.

Kydland, F. E. (1995).&nbspBusiness cycle theory. Aldershot[u.a.: Elgar.

Mankiw, N. G. (2014).&nbspPrinciples of microeconomics.

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