Understanding Business Cycles Thesis

Inflation and Unemployment

Inflation is a recorded rise in the prices of basic commodities that is sustained over a given period of time. Inflation generally results to a situation where a unit of the medium of exchange purchases fewer goods and services. It has adverse effects on the economy such as fall in savings and investments as a result of unclear predictability of prices of goods in future as well as shortage of basic goods brought about by the rush in purchase in anticipation of future price increase (Marshall, 104). Other effects include the rise in opportunity cost especially that of holding money. The principle ides about the cause of is the increase of liquid cash in the economy. However, there are other major causes that are related to this principle. The fluctuation in demand of basic commodities is one cause of inflation as it affects the prices and eventually the people’s purchasing power. This paper takes an in-depth analysis of inflation and its relationship with other aspects of the economy such as unemployment and interest rates.

Business cycle refers to the trends in trade and average production in the economy over a given period of time. It includes the changes in the growth of the cycle of business as well the gross domestic product in general. It is a great determinant of the economy as it affects employment as well as personal level of income and is measured in terms of recession and expansion (Zarnowitz, 162). During the expansion of the economy the level of production at the national level increases and sales takes an upward trend. On the other hand, recession is the opposite and it characterizes the shrinking of the economy. Understanding the business cycle is paramount in safeguarding investment and economic growth. This paper explains this aspect of the economy in terms of how it measured and its relationship with inflation, investments and unemployment.

Works Cited

Carlberg, Michael. Unemployment and Inflation in Economic Crises. New York: Springer, 2012. Print
Marshall, Alfred. Principles of Economics. New York: Palgrave Macmillan, 2013. Print
Zarnowitz, Victor. Business Cycles: Theory, History, Indicators, and Forecasting. Chicago, University of Chicago, 2007. Print