Chapter 13.5, Problem 2R

To determine

The affect of listed terms on the business cycle.

Explanation of Solution

The effect on business cycle due to the given terms are as explained below:

Products

Availability of products in an economy also affects the business cycle. When products are available in an economy, there is demand in economy and there is expansion in economy.

Policy

Change in policies are main reason for the business cycles. The business cycle goes up and down due to the changing policies of government.

Investment

Increase in investment causes expansion in the business cycle. However, when businesses feel that there can be economic downturn, they cut investment which can cause recession.

Psychology

Business cycle also sees fluctuations due to the psychological reactions of people on an event. This can be due to any event like terrorist attacks or change in authorities. Markets crash or face major depression in these kind of situations.

Economics Concept Introduction

Introduction:

Business cycle- The uneven changes in the level of total output that is measured by real GDP is the business cycle. The business cycle is considered important as it can have a significance influence on the consumer demand.