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(a) Illustrate and explain the four stages of the business cycle in relation to the key macroeconomics objectives in context of the global financial crisis that the world is experiencing since October 2008.
The fluctuation of the economic activity in the economy is characterized by the different stages in the economy.
In periods of recession, economic activity drops down to almost null - at the end of both the consumers and the business owners; buying, selling, production and employment are at their lowest. The severity of recession is known as depression.
When recession eases and the economy takes an opposite direction to take an upturn towards better financial prospects, there emerges the hope of recovery. It can be considered as the transition phase which leads to growth.
As the trough advances towards the peak, the era of growth begins; the consumer confidence increases and business activity starts to pick up - since employment is generated, income of the citizens increase and hence increasing demand and hence production levels picking up and so the cycle continues. But, this activity period is coupled with increasing price levels.
The boom does not last forever, even healthy economies face worst. Like recovery, this is a transition period where economy starts to move towards the bottom. Consumer purchases lowers, demand weakens and hence business activity starts to fall.
There are multiple reasons that lead to changes in the levels of the economic activity - volatility of investment spending, momentum or follow the herd strategy of the consumers, technological innovation, varying inventory levels, fluctuation in government spending, effect of political con ...
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