Changes in principal macroeconomic variables over the course of a business cycle and the attempts of the government to control the fluctuations in pursuit of macroeconomic objectives

Chris F.

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Changes in principal macroeconomic variables over the course of a business cycle and the attempts of the government to control the fluctuations in pursuit of macroeconomic objectives

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Abstract

An upturn takes place after a recession and is almost like the recovery stage after the slide. Inflation is at a low level and growth in GDP is beginning start again. Interest rates are low which means there is more borrowing in the economy which means more money for businesses to invest and a greater disposable income for consumers. Unemployment is still high but more jobs are becoming available, and there is a balance of payments surplus as exports are greater than imports due to the low rates of inflation making prices far more competitive against other countries.

Introduction
The four phases of business cycle
The extent of Chinese growth
The aims of the Government
The monetary policy
Demand side policies
Conclusion
Bibliography

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[...] A reason to this could be due to the currency rates and the strength of the British pound, and as it gets stronger, other nations cannot afford British goods. The monetary policy is controlling the money supply in the economy. They do this through controlling and changing the interest rates. They increase rates to dampen the economy and decrease rates to boost it. The monetary policy meet once a month to decide on the interest rates and then the Bank of England set them. [...]

[...] Changes in government policies can also bring about a turning point in the cycle which leads onto the next question as to how governments attempt to control these changes in the cycle in pursuit of their macroeconomic objectives. The Government has 4 main aims which are to have low levels of unemployment, low and steady inflation, steady and sustainable growth and a positive balance of payments. They attempt to try and control these fluctuations in the macroeconomic variables by using the various tools available to them. [...]

[...] In the recession, inflation falls again as people have a lesser disposable income and begin to save money instead of borrow it. Growth starts to slow down and in some cases the economy can begin to contract and GDP through the economy begins to fall. More firms will fail and possibly downsize meaning workers will be laid-off or their may just be a lack of job opportunities, meaning unemployment rates will rise again. Interest rates will fall to try and encourage people to borrow more money. [...]

[...] The large amounts of borrowing will also probably cause interest rates to rise. Consumers now realize the cost of money has increased and luxury good are no longer bought and money is saved for buying commodities. When an economy reaches this maximum level, it is followed by a downturn and recession which can sometimes be set off by random shocks or possibly the ‘time lag'[3] when the governments have tried to intervene. However when this recession will take place can be hard to predict as the length and magnitude varies making each cycle different so the recession could be over very quickly and then begin expanding again until reaching its peak again. [...]

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