Answer to Question #207946 in Macroeconomics for jai

Question

 

What are the three key facts about economic fluctuations? Explain briefly. [3 marks]

Answer 1

1. Economic fluctuations are irregular and unpredictable. Economic changes characterize ups and downs in the economy. As the economy expands, companies can also expand and make greater profits. In comparison, companies gain less revenue, and profit declines when the economy declines. These changes are often known as corporate cycles. However, no one knows whenever the economy will change and to what extent.

2. In economic fluctuations, most macroeconomic measures fluctuate together. Economists apply real GDP in most situations to evaluate economic changes. This is because it is the most significant indicator of economic growth. Moreover, it turns out that most economic indicators that evaluate revenue, expenditure, or output strongly correlate with each other. That is indicators such as per-capital income or retail trade, along with GDP, decrease in economic recessions.

3. As the output falls, unemployment rises in economic fluctuations. Unemployment is associated with economic performance. This is because the production level ultimately determines the amount of labor required in the economy. In short, a business that manufactures only several hundred output units typically needs fewer employees than a company that manufactures several numerous output units. Therefore the unemployment rate is inversely correlated with GDP, as with most other economic and financial indicators. When GDP is declining, the unemployment rate of a nation is increasing, and conversely.