What decisions does the business cycle help businesses make?

Posted on May 12th, 2020   05:26   Digital Marketing
yogi   0   posted 1 year ago   05:26

The performance of a firm is never the same over an extended period of time. Business cycle describes the rise and fall in output of goods and services in an economy. They are fluctuations in economic activity that an experience over a period of time. It is a cycle of fluctuations in the Gross Domestic Product around it’s long term natural growth rate. These cyclic phases are known as business cycles or trade cycles. The business cycle is a pattern of economic boom and busts exhibited by the modern economy. They are important because they can affect profitability, which ultimately determines. Wesley Mitchell stated that “Business cycle is fluctuations in the economic activities of organized communities. The adjective business restricts the concept of fluctuations in activities which was systematically conducted on a commercial basis. The noun cycle bars out fluctuations which do not recur with a measure of regularity.”
There are different stages of business cycle. They are characterized in six different stages.
Expansion: It is the first stage in the business cycle. When expansion occurs, there is an increase in positive economic indicators such as employment, incomes, production, and sales.
Peak: The second stage is a peak when the economy hits a snag, having a snag, having reached the maximum level of growth.
Recession: The recession is the stage that follows the peak phase. The demand for goods and services declining rapidly and steadily in the phase
Depression: In this stage, the economy’s growth rate become negative. Consumers and businesses find it hard to secure credit, trade is reduced, and bankruptcies start to increase.
Through: This period marks the end of the depression, leading an economy into the next step. It is the negative saturation point for an economy.
Recovery: In this phase there is a turnaround from the trough and the economy starts recovering from the negative growth rate.
Business cycles help every business to make their decisions before ahead and start working upon them. Some of the decisions the business cycle help business makes are:
Help frame appropriate policies: Business cycle helps business frame appropriate business and trade policies.
Strategic and business decisions: Managers and entrepreneurs take strategic business decisions based on the phase of the trade cycle.
Greatly affect cycle business: Changes in the economy affect all firms but not uniformly. There are certain businesses that are more vulnerable to a change in the phase of a trade cycle. Such firms have to keep a very close look at the changes in the economy at all times.
Entry and exit from the market: The phase of the trade cycle for its introduction is a very important factor. It is much harder for a new product to survive a sluggish economy that is moving towards a depression. And on the other hand, if a product has to exit the market, again the conditions must be studied. If the economy is coming out of a depression and seeing a revival then perhaps the exit can be delayed. This is another importance of business cycles.

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