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Fall in the level of investments, fall in production, fall in employment, fall stock prices, etc. are found during _____ phase of business cycle.
- a)expansion
- b)boom
- c)peak
- d)contraction
Correct answer is option 'D'. Can you explain this answer?
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Fall in the level of investments, fall in production, fall in employme...
Business Cycles and Contraction Phase
Business cycles refer to the fluctuation in economic activities that occur over time. These cycles comprise four phases - expansion, peak, contraction, and trough. The contraction phase is the period of economic decline characterized by a fall in the level of investments, production, employment, stock prices, etc.
Factors contributing to the contraction phase:
1. Decrease in consumer demand: A decrease in consumer demand leads to a decrease in production, and hence a reduction in employment and investments.
2. Tightening of credit: Banks and financial institutions tighten their lending policies during the contraction phase, making it difficult for businesses to obtain credit.
3. Decrease in business confidence: The decrease in consumer demand and tightening of credit lead to a decrease in business confidence, resulting in a decrease in investments and production.
4. Increase in unemployment: The fall in production leads to a reduction in employment, resulting in an increase in unemployment rates.
Impact of contraction phase on different sectors:
1. Stock market: The contraction phase leads to a decrease in stock prices as investors lose confidence in the market.
2. Real estate: The contraction phase leads to a decrease in the demand for real estate, resulting in a fall in prices.
3. Manufacturing sector: The contraction phase leads to a fall in production and employment in the manufacturing sector.
4. Service sector: The service sector also experiences a fall in demand during the contraction phase, resulting in a decrease in employment.
Conclusion:
The contraction phase is a period of economic decline characterized by a fall in investments, production, and employment. It is an inevitable part of the business cycle and is usually followed by the trough phase, which marks the end of the economic decline.
Business cycles refer to the fluctuation in economic activities that occur over time. These cycles comprise four phases - expansion, peak, contraction, and trough. The contraction phase is the period of economic decline characterized by a fall in the level of investments, production, employment, stock prices, etc.
Factors contributing to the contraction phase:
1. Decrease in consumer demand: A decrease in consumer demand leads to a decrease in production, and hence a reduction in employment and investments.
2. Tightening of credit: Banks and financial institutions tighten their lending policies during the contraction phase, making it difficult for businesses to obtain credit.
3. Decrease in business confidence: The decrease in consumer demand and tightening of credit lead to a decrease in business confidence, resulting in a decrease in investments and production.
4. Increase in unemployment: The fall in production leads to a reduction in employment, resulting in an increase in unemployment rates.
Impact of contraction phase on different sectors:
1. Stock market: The contraction phase leads to a decrease in stock prices as investors lose confidence in the market.
2. Real estate: The contraction phase leads to a decrease in the demand for real estate, resulting in a fall in prices.
3. Manufacturing sector: The contraction phase leads to a fall in production and employment in the manufacturing sector.
4. Service sector: The service sector also experiences a fall in demand during the contraction phase, resulting in a decrease in employment.
Conclusion:
The contraction phase is a period of economic decline characterized by a fall in investments, production, and employment. It is an inevitable part of the business cycle and is usually followed by the trough phase, which marks the end of the economic decline.
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Fall in the level of investments, fall in production, fall in employme...
Contraction
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Fall in the level of investments, fall in production, fall in employment, fall stock prices, etc. are found during _____ phase of business cycle.a)expansionb)boomc)peakd)contractionCorrect answer is option 'D'. Can you explain this answer?
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