What Are Business Cycle Trends?

Economy is the analysis of how a country utilizes scarce resources collectively to produce and deliver various goods and services, both in quantity and quality relative to demand. In the United States, both private markets as well as governmental programs guide the economy. The former regulate prices, production and consumer behavior, while the latter support or provide support for particular enterprises.

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What Are Business Cycle Trends?

Economy is the analysis of how a country utilizes scarce resources collectively to produce and deliver various goods and services, both in quantity and quality relative to demand. In the United States, both private markets as well as governmental programs guide the economy. The former regulate prices, production and consumer behavior, while the latter support or provide support for particular enterprises.

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The level of economic activity depends on two factors: the level of consumption and investment and the level of government spending and regulation. A thriving economy requires appropriate programs to encourage investment, encourage savings, increase productivity, reduce dependence on foreign trade, etc. Economic literacy also refers to the extent of knowledge about domestic policies and institutions, the aptitude for making economic decisions, etc. Economic programs are either national or global in nature.

Economic policies can be domestic or global. Domestic policies are focused on raising overall economic performance by increasing national saving, budgeting, debt and credit management, direct spending, etc., or on maintaining a stable fiscal balance. Global economics is basically the business side of economics, which examines the interrelatedness of economic systems in the United States and abroad. It focuses on international trade, monetary policies, inflation, globalization, and currency depreciation.

Opportunity cost refers to the difference between what a firm has to spend on its options and what it would have to spend if it does not take those options. The advantages and disadvantages of doing business can be studied economics textbooks, but real world examples are much more valuable and realistic. One example is a business purchased and developed overseas. The firm will incur some costs in establishing the overseas operation, hire workers, buy raw materials, etc., and incur some expenses in receiving and sending communications and other international transactional activities. The firm’s total income from doing business in a foreign country is less than the sum of all its domestic expenses plus interest income.

The invisible hand is the concept of spontaneous order generated by demand and supply forces that do not depend on the skill of managers but rather on the behavior of consumers and producers. In a competitive market economy, knowledge of the demand and supply conditions that maximize individual effort and output can adjust prices so as to meet the demands of customers. In a noncompetitive market economy, knowledge of the production process and skills of producers do not allow individuals to adjust prices to match supply and demand. Invisible hand results from the failure of managers to coordinate effectively with each other and with consumers and firms.

Marginal analysis is a method of studying the effects of changes in inputs, liabilities, expenditure, and technology on output, which, unlike marginal analysis in an enterprise, is taken out of the business itself. Changes in output occur through changes in the quantities of various inputs required for the production of the final product. In a pure business cycle, changes in the quantities of inputs that are necessary to determine output are called “entrepreneursial” changes. Changes in the quantity of output due to sunk costs must be determined by comparing the quantity of inputs available for use in making the finished product to the quantity of costs associated with their purchase and use.

The concept of economies of scale from a limited number of inputs produced in a small number of locations is used to identify sunk costs in the form of fixed assets. The analysis of business cycles highlights the importance of changes in output, as reflected by changes in inventories, minus returns, or minus expected returns, as reflected by changes in the level of employment. The analysis also identifies the size of local markets and local industries, representing micro and macro aspects of economic activity. The analysis focuses on the interactions among economic units to determine micro-economic performance. A firm that uses many locations to achieve efficient operation must determine the costs of transportation, which represents the cost of capital invested in setting up the various locations. The firm then uses the appropriate trade-offs between prices and output, which represent changes in prices that result from changes in output, to choose output.

A firm may not realize savings from its purchases until it receives payments for its inventories. Economic analysis can also be applied to the process of liquidation. There are several different types of inventories, including fixed assets and circulating capital, between production, consumption and distribution. Fixed inventories refer to products that have a known value at a particular date and cannot be changed without destroying value; circulating capital represents future cash inflows that will not be realized until delivery; and durable goods, such as machinery, are generally held in reserve because they have a known useful life span. Economic analysis is important to managers of large businesses and corporations because of the many variables that need to be considered in the calculation of short-term and long-term viability. The process of economic development attempts to identify specific actions a company should take to achieve short-term economic objectives by offering managers a range of estimates of what a company should invest in order to reach its set goals.

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