(d) Explain And Illustrate With A Suitable Diagram The Four Phases Of An Economic Trade Cycle. Identify Where You Think The Australian Economy Might Be On A Trade Cycle Diagram?


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Neal Widdows Profile
Neal Widdows answered
The Economic Trade Cycle is a way of measuring the level of growth which a nation is going through at that time or over a period of years. The cycle can also measure or predict the consequences which occur at each of the various stages of the cycle. It is commonly accepted that there are four stages in a business cycle. One of which is expansion - this is where the economy is producing positive or increasing economic output. This usually brings about a fall in unemployment and a rise in employment, normally leading to a rise in prices or inflation due to increase of demand. When an economy or nation has produced its maximum possible output, this is known as a peak. At this point it is generally recognised that unemployment is at an all time low and the economy is on the verge of full employment. During a peak, high demand often pushes up prices. Inevitably, after a peak comes a recession or contraction. By this stage of the process unemployment tends to rise and demand and inflation show signs of falling. This is where government intervention is often encouraged to prevent the continuation of the slump. If governments fail to take action or they fail in their attempts, the final stage is known as the trough. During a trough, unemployment reaches its highest point and production sinks to a low. Due to lack of demand during a trough the reverse of inflation occurs and deflation can become evident. Considering the fact that Australia is one of the few nations that has not announced it is in recession in recent times, common sense would suggest the nation is somewhere between a peak and a recession. Government intervention could be responsible for this, so too could a well regulated national economy.

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