Econ 101 Essay

671 WordsOct 15, 20123 Pages
ECON101: Macroeconomic Essentials for Business Tutorial 3 1) At what phase of the business cycle is the average duration of unemployment likely to be the highest? Explain. There are four phrases of business cycle showing in the economy, which is peak, recession, trough and expansion. During trough of the recession or depression in business cycle the average duration of unemployment likely to be the highest due to the output and employment was “bottom out” at their lowest levels. The depression in economics is a period of economic crisis in commerce, finance, and industry, characterized by falling prices, restriction of credit, low output and investment, numerous bankruptcies, and a high level of unemployment. A less severe crisis is usually known as a recession, a more common occurrence generally thought to be a normal part of the business cycle; it is technically defined as two consecutive quarterly declines in the gross national product. Recessions mark a downward swing in the curve of the business cycle and are caused by disequilibrium between the quantity of goods produced and the consumers' ability to purchase. If a recession continues long enough, it can turn into a depression. Neither term has ever been distinctly defined by a set of criteria, however, so it is difficult to say at what point the two merge. A short period in which fear takes hold of companies and investors is more properly called a panic and does not necessarily occur in every depression, but lack of confidence in business is always present in an economic downturn. Depression develops when overproduction, decreased demand, or a combination of both factors forces curtailment of production, dismissal of employees, and wage cuts. Unemployment and lowered wages further decrease purchasing power, causing the crisis to spread and become more acute. Recovery is generally slow, the return of

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