Introduction
A business cycle occurs when there is a normal continuous form of a model of business behavior over a given period of time. It’s an irregular cycle marking ups and downs in the economic activities. The normal business cycle has got levels for boom when there is great expansion, recession; depression and level for improvement. The business cycle is measured by rise and fall in the real gross domestic policies. These rise and fall in the country’s economic activities leads to great impacts on consumption of goods and services, levels of employments, business stability, investment and productivity (Mankiw, 2007).
Main body
The gross domestic policy affects the business cycle positively such that when the gross domestic policy goes high, the business cycle also tends to expand. Incase the GDP of a country goes down there is a recession in business cycle. This is because the GDP gives all the sales made throughout the year and as well the business cycle model gives the path over a given time of economy. The economists and other economic groups maintain this level so as to ensure there is balance of trade to control the country from going through financial instabilities.
For the economy to be stable, GDP ensures maintenance of two major things; the income of the economy and the expenditure, which is a repeated cycle to keep the equality of the equilibrium in the economy (Mankiw, 2007). For the economy to become a whole there must be a balance between the income and the expenditure. This works out due to the fact that income is equal to the expenditure in each performed transaction due to the two parties involved, that is, the buyer and the seller. What the seller gives out so as to purchase is what the buyer on the other hand receives as an exchange of what he has sold. The country’s economy must be maintained and this is done by several governmental bodies through making decision on national fiscal policies.
The use of the prepared budget by the government to fulfill its set goals and objectives regarding its economic activities is what is called fiscal policies (Taylor, 2007). These governmental bodies are greatly involved with taxes, government spending and interests rates. The supply of money is also maintained to keep low the level of inflation, and this is done by the Federal Reserve. For the country to achieve its objectives of offering maximum job opportunities, the government has to maintain stable prices of its goods and services, and regulate long term interest rate. The Federal Reserve act puts extra effort in setting the goals of monetary policies. Without a strict financial stability, these goals can be hard to be achieved. To ensure standard taxation among the citizens and all organizations, both private and public owned, the internal revenue service takes over that responsibility.
Conclusion
When any government body decides to change its policies, the economy’s production and the rate of employment can be affected either positively or negatively (Taylor, 2007). For instance, when a government decides to introduce a new economic activity, it also provides subsidies to that activity which will create additional job opportunities. Moreover, the products from the newly introduced activity will have an increased demand which will motivate the government to create more income generating projects for that activity to take on. The government may as well decide to increase spending of the products of this newly formed economic activity, and offer some tax breaks for activities which supplies that business with raw materials.
Reference list
Mankiw, N.G. (2007). Principals of Economics. 4th Ed. Cengage Learning (Thompson). ISBN- 8131502791
Taylor, J.R. (2007). Technical Progress and Economic Growth. Edward Elgar Publishing.