A country’s economy goes through various phases as internal and external business factors influence the country.
Economic fluctuations are sometimes a sign of a booming economy, while sometimes they could signify a recession.
The fluctuations are signified by ebbs and flows, which can show the economic fluctuations due to economic activities such as production, investment, employment, wages, spending capacity, and other economic factors.
Many financial analysts and economists believe that the USA is undergoing a recession in 2022, while many believe there is an oncoming recession. However, the government has not declared this phase, so till then, it is assumed that the economy is under control.
However, entering a recession might be challenging, but an economy also overcomes it if the policymakers make all the right decisions. Before recovering, the economy goes through various phases in a business cycle like expansion, peaks, recession, etc. To know more about it, continue reading.
- Expansion
It is the first stage of a business or economy cycle, wherein economic activities such as employment, production, income, profits, and other things show a positive trend.
Herein the demand and supply are believed to be at equilibrium.
During this time, the debtors are paying their debts with interest at the right time, and the supply of money is adequate in the economy.
- Peak
Once the economy has expanded to its maximum, it could be deemed the peak. Herein, the economy’s growth does not decline but rather stagnates. In most cases, this stage is often followed by a trend reversal.
- Recession
After the peak phase, the recession comes, wherein the demand for goods and services starts to decline and continues to decline further.
Until producers or manufacturers notice the decrease in the demand, the production continues, which in the long run causes equilibrium as there is more demand than supply in the economy.
This causes the income, output, wages, and profits to decline and affect the common people.
A decline in income and lowered consumer confidence reduces the spending capacity of the common people, which in turn reduces everyone’s income in the economy.
Moreover, interest for short-term loans tends to increase, and many debts convert into bad debts, ensuring a recession.
- Depression
Depression is an extended state of a recession that is triggered by a constant increase in unemployment. A prolonged and continuous decline in employment rates below the average line can be deemed a depression.
- Trough
During the trough phase, the economy and its contributing factors, such as demand and supply, fall to their bottom. The trough is the saturation point for the decline of the economy.
In this case, the national income and expenditure are also at their lowest point.
- Recovery
In this state, the economy takes another U-turn, and it starts to overcome the trough and the negative growth the economy has been going through.
Since the supply was more than the demand, the prices of products and services were already down during the recession. So, eventually, the demand picks up owing to the low prices, and the supply stabilizes.
After this, production and employment also tend to pick up, and so does lending.
The recovery stage continues, and the economy stabilizes to steady-positive growth levels.
So, whether the country is under recession in 2022 or if there is an upcoming recession is yet to be known.
However, even if this phase is coming, fiscal and monetary policies will help the country strive through it and overcome a recession.
