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Economic Issues and Business Cycles - Coggle Diagram
Economic Issues and Business Cycles
Economic Issues
Governments aim to achieve their economic objectives by implementing policies that affect spending, interest rates, and taxation, which in turn impact businesses differently based on their size, industry, and the economic environment of the country.
Low Unemployment
When more people are employed, they have the ability to earn a better living, which can increase the standard of living for the country's citizens.
With a higher level of employment, the government can collect more income tax, which in turn can be used to fund various initiatives.
Governments aim to keep unemployment rates low as it ensures more people are contributing to the country's total output, leading to improved economic growth.
Governments can save money by not having to provide unemployment benefits to individuals who are employed.
Low Inflation
Low inflation means that the prices of goods and services are stable and predictable, which makes it easier for people to plan their expenses and maintain a better standard of living.
At the same time, it encourages businesses to invest and expand, leading to job creation and economic growth.
High inflation can create uncertainty and promote people's exrteme purchasing power, as prices rise faster than their income, which can lead them to opt for cheaper foreign goods instead of supporting local businesses.
This can cause a ripple effect on the economy, as local businesses suffer from lower sales, which can lead to job losses and reduced economic growth.
Positive Balance of Payments
A negative balance of payments, or deficit, occurs when a country's imports exceed exports, leading to a shortage of foreign exchange and potentially costly borrowing.
It is advantageous for a country to maintain a positive balance of payments to avoid the economic issues that come with a negative balance of payments.
A positive balance of payments occurs when a country's exports exceed imports, resulting in more money coming in than going out.
Economic Growth
GDP is a measure of a country's economic growth and indicates whether more goods and services are being produced compared to the previous year.
A growing GDP is beneficial to people and the economy, leading to improved standards of living and increased business opportunities.
Conversely, a fall in GDP can result in lower output, reduced job opportunities, and a decrease in the standard of living due to the inability to afford goods and services.
Business Cycle is the effect of the government attempting through different actions to maintain the 4 general objectives above.
Business Cycle
Business Cycle is an economic cycle that consists of expansions and contractions in the broad measures of economic activity.
Recovery
Rising output and employment:
During a recovery phase, output triggers job gains and rising incomes, leading to an increase in economic activity.
Increasing demand and sales:
Rising incomes and employment lead to increasing demand and sales.
Positive consumer and investor sentiment:
Consumers and investors tend to feel more optimistic during a recovery phase.
Renewed borrowing:
Borrowing tends to increase during a recovery phase as businesses and individuals become more confident in their ability to repay loans.
Slump
.
Reduced industrial production and employment:
During a slump, there is a reduction in industrial production and employment.
Weak demand and sales:
Slumps are marked by a general reduction in demand and sales.
Decreased consumer and investor sentiment:
Consumers and investors tend to feel pessimistic during a slump phase.
Increased bankruptcies and unemployment: Bankruptcies and unemployment tend to increase during a slump.
Reccesion
.
Declining output, employment, income, and sales:
A recession is marked by cascading declines in output, employment, income, and sales.
Spread across the economy:
The recession's diffusion is measured by the extent of its spread across economic activities, industries, and geographical regions.
Negative consumer and investor sentiment:
Consumers and investors tend to feel pessimistic during a recession phase.
Reduction in borrowing:
Borrowing tends to decrease during a recession as businesses and individuals become less confident in their ability to repay loans.
Boom
.
Increased production, employment and income:
During a boom phase, there is an increase in production, employment, and income in many economic activities.
Increased demand and sales:
Booms are marked by a broad-based increase in demand and sales.
Positive consumer and investor sentiment:
Consumers and investors tend to feel more optimistic during a boom phase.
Increased borrowing:
Borrowing tends to increase during a boom as businesses and individuals feel confident in their ability to repay loans.
Juan E. Hernández & Alejandro Montañez (9A)