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Economics 2002.01 Application Paper

Description: This paper applies economic principles to real-world situations and analyzes economic issues.

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    Name Economics 2002.01 Application Paper Based on the discussion of business cycles in your assignment, explain the four phases of the business cycle — expansion, peak, contraction, and recovery. How do these phases relate to the three main goals of macroeconomics: full employment, stability, and economic growth? Additionally, using the macroeconomic data presented for the U.S., assess the current phase of the economy and explain your reasoning. Your response should be between 600 - 700 words.

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    Principles of Macroeconomics Economics 2002.01 2 Section One: Business Cycles The three main goals of macroeconomics are 1. Full employment 2. Stability; and 3. Economic growth Production of goods and satisfying the needs of people can be achieved when all the available resources are employed. Resources here do not mean only human, but also include land, capital and organization. When all such resources are properly employed, the problem of scarcity may not arise. So, full employment can ensure a good economy. Stability means no fluctuation or variation. We always find that the unemployment rate, inflation index, production scales etc show changes from period to period. Stability is important as it gives an economy comfort from uncertainty and disruptions. Economic growth is indicated through expansion or increase in production capacity . It can also be achieved through increase in quantities of resources used for production. Economic growth results in satisfied people and gives them a better standard of life. Business Cycle Business cycle in an economy tells about its different phases of growth and decline. Business cycle has usually four phases which are also known as its components. These are as below: - 1. Expansion: - As the name indicates, in this phase the economy grows. This comes with better and more utilization of resources resulting in positive and increased output satisfying human needs. Unemployment falls and the purchasing power of people grows resulting increase in inflation. 2. Peak: - This is considered as the best position for an economy where the unemployment rate decreases, purchasing power of the people reach to the top and further expansion of

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