HOW LONG can economic expansion last?
Changing conditions throughout the market seem to follow a pattern known as the business enterprise cycle. The phases of the business enterprise cycle are prosperity, recession, depression and recovery. Money management becomes more challenging for the Federal Reserve (Fed). This description of the business enterprise cycle begins with the recovery leading to a recession.
Recovery: the recession is over. Investors, feeling better times in the future, are putting additional money in the currency markets, where prices are rising. They will have little difficulty finding qualified workers. The growing financial interdependence of nations now implies that they share many fiscal conditions. Retailers have reduced their inventories to a minimum and had the need to meet the slack demand of economic depression. The costs are pruned. Federal taxes have already been cut. The federal government has launched larger spending programs to increase demand. Companies have inactive machines and plants, so they want more orders.
Collection speed: the business begins to expand. Consumers and businesses are well informed and, therefore, inclined to invest and borrow. They do some of the shopping that they postpone during the recession. According to the Global Viewpoint articles, the slowdown would have a direct impact on other countries on earth because “they are heavily influenced by export sales to America.” Retailers discover that they want larger inventories to keep up with demand.
Builders are adding more houses, which are easily sold because mortgages are cheaper and easier to get. Government spending grows to cover programs initiated through the recession, and there is little to worry about restricting it, because tax revenues soon increase due to higher profits and higher personal income. As idle facilities return to production, increasing profits encourage companies to buy new plants and equipment. “Changes in the U. That is, each home based business provides a boost to most other new businesses.
The impact of the increase in prices
A sample of charges for goods and services shows that they increased substantially between 1981-2002.
Restrict the boom: at some point during this period of time of prosperity, problems could arise. S. Scarcity develops and prices increase rapidly. The characteristics of each phase are predictable. The demand for credit continues to grow and interest levels are increasing. Some plants are permanently closed. The Federal Reserve must decide when to improve the discount rate, the interest it charges member banks, in an attempt to avoid an uncontrolled boom.
However, for a time, conditions continue at a steady pace to favor higher prices, the growth of inventories and increased speculation in stocks and commodities. Skilled workers are in a vendor market. Prosperity and depression in the United States and elsewhere have a contagious effect that can spread to many nations of the world. The increase in costs and the higher levels of interest make new capital investments less attractive. The builders find many of their houses empty. The money to continue building is hard to find. Debts are paid Traders discover that they will have more products than they want, so they order less.
Recession: some producers are forced to reduce production and lay off employees. Workers who do not have a job or are investing less in face-to-face time have a difficult time keeping their debt payments. Higher levels of interest in securities can now take money out of the mortgage market. As demand fails, cuts in production and employment are reduced. Many people suffer a decrease in income. Pessimism is generalized and demand is further reduced. A recession is on the way.
Fighting the recession: once again, companies work with their excessive inventories. The credit is simple to obtain. Consumers took care of their demands and their expenses increased less quickly, although it is still possible for them to obtain loans. Some weak companies sink. The Federal Reserve System, in trying to choose how much money to generate, is torn between the desire to encourage expansion and the fear that the economy will grow so fast that inflation starts. Congress, the White House and the Federal Reserve again make an effort to increase demand and make money in abundance. Given that periods of boom and bust cause such havoc, government intervention is necessary throughout the market.