Ashley Granquist
Professor Lubarsky
Macroeconomics
19 June 2017
Business Cycles, Unemployment and Inflation
Economics is a very large-scale topic. Ranging from microeconomics to macroeconomics, focusing on the bigger picture and as small as the little details we don’t notice day to day. Particularly, economics is the study of how individuals, societies and countries around the world deal with the problems of scarcity. Scarcity, being a major issue in the economy, is unbearable because the wants and needs of the human population are not always fulfilled. The common definition of economics is the social science that studies the distribution, production and consumption of goods, making it easier to understand how finance works. The topics I chose to write about, that I feel are most important to my generation of students today is the business cycle, unemployment, and inflation. The entire population as a whole is affected by these matters. But being a student fresh out of college, could make matters worse, or sometimes work out how things are planned, all depending on the country’s economy.
Every day, all over the world, businesses are affected by the economy either benefiting off of it, or suffering from it. Business cycles are measure using gross domestic product (GDP), which is the measure of total output of goods and services within a time period. It can range from positive to negative, all through 4 stages of the cycle. Starting with recession; having a negative growth of output in the economy. During a recession period, unemployment and income decline. If the GDP has declined two consecutive time periods in a row, a recession will occur. Right below a recession is a slump, where the GDP is at its lowest point in the cycle. Growth/recovery means the economy has grown into a more positive stage. Lastly, where we all want our countries economy to be, is the peak. This is the highest point in the business cycle. The business cycle affects all individuals, no matter what age you are. Whether you are the owner of a small business, you own a franchise of business’, or you are a customer or consumer you can and will be affected. The government’s goal is to keep the economy high so its people of the country are not affected, usually by keeping a high employment rate. If the economic growth slows down, the unemployment rate can increase, consumer spending will go down, as well as possible bankruptcy for business’ or homeowners that could have lost their job. Growing up, students don’t go through school every day thinking “I hope the economy is at its highest peak when I graduate so I can get a job right away.” But the more you begin to closely pay attention to and notice how the economy works, as well as how much closer you are to graduation, the economy and what you are beginning to notice starts to scare you. As easy as all may think it is to get a job fresh out of college just because you now have a degree under your name, could all feel like you have nothing depending where your country stands economically.
Unemployment is a person’s biggest fear. No job means no money, more dept, and sorrow. By definition, a recession occurs when there are reports of negative growth for two consecutive quarters. Once this occurs, our country faces a recession. More recently, the United States faced a recession from 2008-2009. So what does a recession entail? The results of a recession impact the overall economy. As businesses produce products with the intention to
deliver goods and services to consumers, times of recession negatively impact those businesses. Starting from the rollout of the reporting’s of negative GDP growth for two consecutive quarters, businesses will become in panic. During a recession, consumers are less likely to purchase the goods and services produced by these companies which take a toll on the company’s reported earnings. Essentially, this means that without the spending of consumers, these businesses will have a surplus of products/services without the revenue generating in. Consumers not spending money affect the supply and demand of these companies. If the demand is low, prices will need to rise in order to reach a company’s revenue. Keeping in mind that consumers are less likely to spend money during a recession, these products/services will be left untouched by the consumer. From here on out, budgeting will take effect. These companies will rollout new strategies to maintain their company in a profitable status, or in worse case, sustainable (without a loss or gain) status. Pricing of products may go up to help alleviate some of the growing pains, however that still won’t be enough. Maybe companies will eliminate employee benefits, affecting the employee retention rate. Another scenario can be laying off some of these employees. During a recession, companies must do whatever it takes to stay above ground, or keep the company from declaring bankruptcy.
Inflation rates spike up when there is a recession in the economy. This means that the average textbook for a student would be more expensive for a consumer, during a time period of high inflation. As I mentioned above, the economic world always has a cause and effect. In this case, the higher inflation rates lower the purchasing power of the consumer. Once again, with a low purchase power, business’ will be greatly affected due to consumers not spending more. The overall economy will not reach its highest potential all from the GDP reporting’s. As we can see, this one reporting affects all business through inflation, spikes and interest rates, unemployment rates, and much more. Laying off the workers is a common effect of a recession, which limits the productivity of the business. Less employees, means less output for the company. This is what we saw in the 2008-2009 recession. Many employers were laying off employees through budgeting. Recessions not only affects businesses, but it also affects all aspects of our economy. With all of this in mind, let’s see how an economic recession could’ve played a role in my life.
Recessions affect the overall business cycle for any given company. Business cycles will either lose, or profit from the economic growth. Statistically shown, students often graduate college with a debt over their shoulders. The debts can range from 20,000 to 100,000. There’s no limit on the debt, and every student’s circumstances are different. Imagine graduating college to find out that unemployment rates skyrocketed. This can have everlasting effects for students. Actually, this is what happened during that recession in 2008-2009. Students struggled finding jobs during the recession because businesses were in the middle of laying off their own employees. The money wasn’t there to hire freshly graduated students looking to implement their skills in the workforce. From here on out, what resulted from this time period was a snowball effect. It was harder for students to repay those loans throughout that time due to the decrease of activity in the economy. Interest rates spiked, which dramatically increased those debts, while students were seeking employment. This led to many students landing jobs that they didn’t even want, something totally farfetched from their career track, just to sustain life. It was very common for students to receive minimum wage from companies they did not consider their career, but this was only to sustain life. Unemployment rates also affect the rate of inflation in the nation, which can also make matters worse for those new graduates. Once the recession was over, the unemployment rates dropped dramatically and those students may have left these companies they initially didn’t want from the start, which also impacted the company.
In conclusion, the United States uses GDP to evaluate the overall economy. However, the government, the federal reserve, and investors should not be the only ones keeping track of the economic growth of our nation. In my opinion, students should have enough knowledge of our economy because they will be the new individuals of the work force. By understanding the overall outlook of the economy, students can be more prepared for their future. For instance, if the economy was down like the 2008-2009 recession, students should have prepared by saving. Historical data shows the economy always recoups, therefor some students could have invested more or even used the economy struggles to start up their own business in a new market. Give or take graduation for myself will happen in 2019, my only hope is that the United States economy is at an all-time high. At that point, it would make 10 years since the recovery of our last major recession. My search for employment in my career path could be much easier, as well as getting a steady pay to help keep myself stable as well as beginning to pay off student loans. The economic world is a very complex world and there is a cause and effect with every business related action. The economy of a nation is a major indication of its overall success.