Economic Cycle From 1984 To 1986 Essay

We can first define economic cycles as the reoccurrence of the expansion or contraction of a countries economy. We still have to look at the view of Wesley Mitchell who is the most famous in the research on economic cycles. He defined business cycle as; Business cycles are a type of fluctuation found in the aggregate economic activity of nations that organize their work mainly in business enterprises; a cycle consists of expansions occurring at about the same time in many economic activities, followed by similarly general recessions, contractions, and revivals which merge into the expansion phase of the next cycle; this sequence of changes is recurrent but not periodic; in duration business cycles vary from more than one year to ten or twelve years; they are not divisible into shorter cycles of similar character with amplitudes approximately their own. (Burns and Mitchell, 1946, p. 3) In this paper, we would be looking at the economic cycle of the U. S economy between 1984 to 986. Nevertheless, before going into the economic cycle that existed from 1984 to 1986, it is clear that in our present time the economy of now pulls the same trends with that of the 1980s. The present fiscal states bears the same tends too, with the borrowing made by government to come down following the substantial years of borrowing. The PSBR declined and surpluses were reached as the 1980s progressed. Surpluses were projected to continue on the grounds of unchanged policies. __________________ 1. Bruce T. Grimm, â€Å"Alternative Measures of U. S. Economic Activity in Business Cycles and Business Cycle Dating,† BEA Working Papers 0024, Bureau of Economic Analysis. 2005. Nevertheless, this was not the same in the early 1990s, as public finances had deteriorated markedly with the deficit reaching 7 per cent of GDP in 1993-94. Not withstanding we have to look at the topic on board and discuss on the cycles of 1984-1986. ECONOMIC CYCLE IN 1984 The economy of the United State rocketed at a fast pace for nearly two decades as the wallets of consumers went fat and it was all about shopping spree . This was all about the recession of the 1980s with specification to the year 1984. The increased pace of growth did not only reflect on the mode of shopping but on the spending done on business. From 1984 to 1986, there was a rapid increase in employment. The increase was so rapid that many analysts to term the United States economy as the American job machine. However, as the rate of employment increased, many still did not benefit from the expansion. Among the less educated young men, unemployment rose and the rate of labor force participating decreased. Though there were enough jobs, many still argued the quality and measurement of the American job in terms of wage, benefits, and job security was decreasing. There was a decrease in high paying jobs in the manufacturing sector and there were more of low paying jobs. There was a growth in part-time and temporary jobs and the less skilled workers were like an erosion of job quality. By the early part of 1984, America experienced the new period of sustained growth since World War II. The tax cut made by government increased the rate of spending done by consumers. ______________________ 2. Burns, Arthur, and Mitchell, Wesley. Measuring Business Cycles. New York: National Bureau of Economic Research. (1946). GNP increased at an annual rate of 4. 2 percent except for the decline in 1986 to fewer than 2 percent. This was the lowest in the decade. The rate of inflation was between three to five percent and the economy produced 13 million jobs. ECONOMIC CYCLE 1985 The economy of the United States continued in an upward trend from 1984 to 1986. This continued in 1985 though in a slow trend in the early year. Nevertheless, as the economic growth continued due to healthy growth and the demand for goods and services, the domestic production suffered because most goods available where imports. The second half of the year was also accompanied with steady growth that lead to the expectation of a continued growth into 1986. Now, looking into the economy in 1985, it was noticed that the first half of the year had a sluggish growth. The GNP of the last half of 1984 rose by 3 percent but that of the first half of 1985 was rose only by 1%. The worsening of the export sector and the decline in inventory investment in first half largely offset a moderately strong increase in the purchase of domestic product goods and services. These included government purchases, business fixed investment, consumption expenditures and residential constructions. Most of the strength in purchases where provided by U. S households. This is due to the strong growth in consumption and the increase in spending done on residential projects. By the second half of the year in 1985, the economic growth has quickened with a 4. 3 percent rise in the GNP at third quarter. The domestic final purchase increased more than that of the first half and the was a decline the rate of export. Because of the sharp _____________________ 3. Balke, Nathan S & Gordon, Robert J. â€Å"The Estimation of Prewar Gross National Product: Methodology and New Evidence†. February 1989. Journal of Political Economy, University of Chicago Press, vol. 97(1), pages 38-92. rundown in the domestic stocks for automobile, inventory investment, decline more than that of the first half. The government’s purchases of goods and services in the third quarter were also a sharp contributor to the purchase of domestic final products. The rise in government purchase was because of the increased use of Commodity Credit Corporation Loans by farmers and large increase in defense purchases. Residential fixed investment also increased and while nonresidential fixed investments declined. Expenditures done on personal consumption products increased strongly in third quarter of 1985. The economic growth pace in 1985 was a steady one and it was about 2. 5 percent. This was lower than that of 1984. The growth in domestic purchase increase because of the demand for personal consumption was high. Resource use and Inflation In 1985, the growth in output was not strong enough to reduce the underuse of resources. The rate of unemployment for the civilians fell from 7. 2 percent to 7 percent in November. Manufacturing employment declined and the payroll for nonfarm jobs increased moderately. The rate of capacity utilization in industries, which was another measure of resources use declined at about one percent point. This reflected the greater slack present in the industrial sector than in the social economy. The inflation rate was checked by the slack in the economy this was combined with the strong dollar prices on import and imports competing goods. There was a moderate in increase in the rate of labor cost and the favorable performance for food and energy prices contributed to the level of inflation in 1985. The broadest general price index _____________________ 4. Cacy, J. A. , Glenn, H. M. , and Dan, H. H. â€Å"Economic Review: The U. S. Economy in 1985 and 1986†. December 1985. increased by 3. 75 percent annual rate over the first three quarters of 1985. the price of finished goods sold at wholesale rose by 1. 5 percent in November. This was higher in than that of 1984. The prices of food product declined significantly and there was a slight drop in energy prices. In summary, the year 1985 saw moderate U. S. demand growth being changed to a sluggish out put growth. This was because of the worsening rate of export and inventory investment. The sluggish output growth kept a large amount of resource idle. The total slack experienced in the economy, the direct influence of strong dollar, the weak food prices, and the weak energy prices restrained the rate of price inflation.