Describe the Various Phases of Economic Cycle, Which a Country Might Experience and Explain the Possible Causes of Such Cycles.

The economic cycle is a native economic guessing of the phases that an economy may experience during certain climates. This derriere be understood by the basic economic cycle diagram, which shows the contrasting peaks combined with a line representing trend harvest-tide. Governments ideally wish for like growth, close to or on the trend line, this is where the economy is continually expanding and maturement at a rate which the government perceives to be sustainable. For example, the UK aim for 2. 5% trend growth, however due to the economic cycle we bottom of the inning understand that it r arely stays at atomic number 53 point for a ample period of time.When the actual growth line is above trend rate, this is know as a absolute output gap and when the actual growth line is be impression trend, a negative output gap. A cop period is a period on the economic cycle whereby the hack surpasses trend growth this represents substantial economic growth and is represented by a peak in the economic cycle. Recessionary periods are stages in the economic cycle when growth falls, this occurs most commonly after a sail through period and will lead to the next public treasury in the economic cycle, or fizzle.Bust is whereby the economy is suffering a low point, they are at their lowest in terms of economic growth, in operation(p) much below the trend rate and is seen as a trough in the economic cycle. A reco really can be seen on the economic cycle diagram by the encroachment of actual growth to trend growth, and is hence where the economy is growing gradually and recovering from the bust period they have just suffered. The economy is likely to experience a boom period oft in times when supply emplacement policies exceed their time lag and their productivity can be seen.Or perhaps in the short term through a throw out in implore side policies, such as a slack in interest rates to encourage consumer outgo, however such take away side policies are sho rt-lived due to the accompanied inflation and thusly are unlikely to be the sole nonplus of a boom period. Similar to the causes of a boom period are the causes of a recovery, this can be induced by the governments willingness to encourage consumption or potencely increase labour productivity via methods such as training and education. Similarly to this, a recession can be combatted and compel into recovery by both fiscal and fiscal insurance policy.Monetary policy would focus on decreasing the money supply in coif out to stimulate the economy whereas fiscal supply focuses on government spending and tax. A reduce in taxes such as income tax would imprint in theory to get people back to work and therefore push out the PPB to potentially develop economic growth. As antecedently mentioned, it is possible for the government to stimulate aggregate train using monetary policy, via a reduction in interest rates, however this does non come without its own problems, it leads to pot ential speculation of increasing price levels and inflation.However recessions and potential busts can be created in many numerous different ways, one of which previously just mentioned in terms of speculation. Speculative bubbles work via the chat of the consumer, for example, the Housing market was massively published and conversed about to rise dramatically over the coming years. This forced people to purchase houses there and hence in the hope that they will be provided with a better price now than they would in the future, due to speculation they were correct in doing so. much(prenominal) speculation skyrockets demand and with it too comes price levels, this is a common cause of a recessionary period. In addition to this demand-side shocks such as the quote crunch of 2008 in the USA, result in massive contractions of AD. Such demand side shocks come unpredictably in the economy, and thus make it very difficult for the government to prepare adequately for. Such negative dema nd shocks are expressed in the diagram below, whereby the shift from AD1 to AD2 can be seen.Supply side shocks are overly uncontrollable and come ordinarily with little preparation time for an economy, for example, due to the BP cover crisis of 2009, prices rose massively as BP prepared to lose millions of gallons of wealthy resources in the form of oil. On the other hand, a positive supply side shock could potentially be experiencing now, as a result of the Libyan crisis, negotiations are afoot(predicate) between the UK government and the Libyan government to set up and oil partnership. This could affect the supply of oil massively, and potential be a positive for the economy.Climatic Factors must also be mentioned with reference to the economic cycle, and often result in the further diminishing of the worlds small economies. For example the wildfires in Canada resulted in the global price of grain creation bolstered largely, and therefore has the potential to put the economy into a recessionary period as one of their large exports suffered a major loss. Political Factors should also be mentioned when discussing the progress of an economic cycle, for example to make the appearance of a certain government positive, prior to an election they may attempt to hiking employment in the UK.This is a last ditch effort from the politicians in order to sway the votes of their citizens. However, these jobs could be short-lived and are often not sustainable, therefore do more harm to the economy than good. To conclude, there are many causes of the economic cycle, some positive and some negative, however it depends on potential government preparation and intervention to obstruct damage exceptional what it needs to, and recessionary periods to be continued for long periods of time. Economies must be well equipped to deal with unexpected occurrences in order to prevent long term suffering of economic growth.