Economical Correlations Concerning Business Cycle Instability Free Essay Example, 4750 words

The government expenditure during a recession does not decline. This is due to the inertia in government budgeting and spending process instead of financial activism. Net exports are that export-import increases during the recession. Domestic firms failing to experience sufficient demand in the indigenous market opt for selling the product abroad. If successful, it brings a shy of relief to the economy. So, if Y represents the GDP, then Y = C+I+G+NX, where C stands for consumption expenditure, I for investment expenditure and G for government expenditures respectively. Then it has been analyzed till now that during a typical business cycle, which is a continuation of expansion and recession leading to crest and trough respectively. Consumption rises during expansion and reaches a peak before declining towards the trough. The investment follows the similar route and NX behaves oppositely to C and I. Since C and I are the main building blocks of GDP, the GDP as a whole expands during expansion reaches the peak and then experiences the recession to reach the trough. It is interesting to note that even if consumption expenditures experiences positive growth during the recession, due to the assured decline in investment during the recession, GDP always declines. We will write a custom essay sample on Economical Correlations Concerning Business Cycle Instability or any topic specifically for you Only $17.96 $11.86/page