Expansion Phase Characteristics

The expansion phase is a period of economic growth and prosperity. During this phase, the economy experiences an increase in national output, consumer spending, and bank credit. However, there is one characteristic that does not fit with this trend.

Excess Production Capacity of Industries

One of the characteristics that does not fit with the expansion phase is the excess production capacity of industries. This means that the industries are producing more goods than the market demand. This excess capacity can lead to a decrease in prices, which can negatively impact the profitability of the companies.

Possible Reasons for Excess Production Capacity

There are several possible reasons for the excess production capacity during the expansion phase:

1. Overinvestment: Companies may have invested too much in the production capacity during the previous phase, anticipating a higher demand than what actually materialized.

2. Technological Advancements: Technological advancements may have increased the efficiency and productivity of the industries, leading to excess capacity.

3. Globalization: Increased competition from global markets may have led to excess capacity, as companies try to maintain their market share.

Impact of Excess Production Capacity

The excess production capacity can have several impacts on the economy:

1. Lower Prices: The excess capacity can lead to lower prices, which can benefit consumers but hurt the profitability of the companies.

2. Unemployment: The excess capacity can lead to lower demand for labor, which can result in higher unemployment.

3. Investment: The excess capacity can discourage companies from investing in new projects and expanding their capacity, which can slow down the overall economic growth.

Conclusion

In conclusion, the expansion phase is characterized by an increase in national output, consumer spending, and bank credit. However, the excess production capacity of industries is a characteristic that does not fit with this trend, and it can have several impacts on the economy, both positive and negative.