Using the article in the screenshots and knowledge of supply and demand models and Business Cycles, please help with the following questions:
1- Explain each of the four components of GDP: C, I, G, and NX.
Your Explanation:
C:
I:
G:
NX:
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2- How is GDP calculated?
Your Response:
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3- Consider Stage 1: Economic Slowdownfrom the article. Propose a Keynesian policy to increase aggregate demand.
Your Response:
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4- In Stage 5: Economic peak, prices tend to rise rapidly. What does this say about potential GDP and the GDP gap?
Your Response:
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5- The article states, "Pinpointing particular stages of economic activity is not always easy, and sometimes even economists cannot agree on exactly where the economy stands in any particular cycle."
In your opinion, do you think government regulation is more of a precise science with clear laws and principles or an art with significant interpretation and guesswork? Why?
Your Response:
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Watch business cycle for clues to investment opportunities Chun, Michael . Pacific Business News; Honolulu Vol. 3?, Iss. 16, (Jul 2, 1999): 15. 65'ProQuest document link FULL TEXT Business activity tends to go in cycles, and understanding the stages of a business cycle can provide clues that may help you identify favorable investment opportunities. While some stocks tend to be immune to economic swings, others perform better or worse during different stages of the business cycle. The business cycle can provide insight, but it is important to realize that the U.S. economy rarely follows this cycle precisely, and that the amount of time spent in each stage of the cycle varies. In addition, the economy does not always expand to its fullest levels. nor does it always dip into recession. It does, however, tend to proceed through six typical stages. Here are some general guidelines to which market sectors are inclined to benefit in each cycle. Stage \"I: Economic slowdown In a period of economic slowdown, utilities and financial company stocks usually react favorably as it becomes clear to investors that the economy is sluggish. Longterm interest rates peak, and shorter rates begin to fall as the Federal Reserve implements strategies to stimulate the economy. Thus, investors often buy interestrate sensitive stocks. Utilities, which generally have high debt levels, benefit as rates decline. Financial companies also benefit as rates {and therefore cost of funds] decrease and loan demands increase. Stage 2: Anticipated recovery With anticipated economic recovery, consumer stocks typically rise, as low interest rates encourage consumers to spend more. Stock prices are generally very low during this stage of the economic cycle. Stage 3: Midcycle recovery In a midcycle recovery, interest rates begin to go up, and early signs of inflation emerge. At this stage, stocks generally perform better than bonds. Industrial companies, such as electrical equipment, machinery and construction come into favor. Stage 4; Full expansion During the full expansion stage of the business cycle, interestrate sensitive stocks generally peak by the time the cyclical expansion is fully under way. Opportunities may appear among companies that benefit during higher inflation and in higher interestrate environments, such as chemical, technology and energy stocks. Stage 5: Economic peak At the economic peak of the cycle, the major stock market indexes may dip below their 12month moving averages. Basic materials companies (including chemicals and metals) and energy stocks are often favored by investors since inflation is probably peaking during this cycle. Stage 6: Economic decline When the business cycle reaches economic decline, investors attempt to protect their portfolios as the economy slows by moving back into "earlycycle" stocks, beginning with consumer noncyclicals, which are companies that sell products and services whose demand is not tied to the economic cycle. The cycle is not precise While tracking the business cycle can be a useful barometer for investors, keep in mind that the business cycle is not precise. In addition. pinpointing particular stages of economic activity is not always easy. and sometimes even economists cannot agree on exactly where the economy stands in any particular cycle. AuthorAfliation Michael S.F. Chun is a financial adviser and retirement planning specialist with the Honolulu office Morgan Stanley Dean Witter. This article does not constitute legal or tax advice. Individuals should consult their legal and tax advisers regarding personal trusts and before making any legal or taxrelated investment decisions. The information and data in this article were obtained from sources considered reliable. Their accuracy or completeness is not guaranteed, and the giving of the same is not to be deemed a solicitation on Stanley Dean Witter's part with respect to the purchase or sale of securities or commodities. DETAILS Publication title: Pacific Business News; Honolulu Volume: 37 Issue: '| 6 Pages: 1 5 Number of pages: 1 Publication year: 1999 Publication date: J ul 2, l 999 Publisher: American City Business Journals Place of publication: Honolulu Country of publication: United States. Honolulu Publication aubiect: Business And Economics ISSN: 00308552 Source type: Trade Journals Language of publication: English Document type: PERIODICAL ProOuest document ID: 235384484 Dowment UFIL: httpszflsearchproquest.comidocviewl235884484?accountid='l 94576 Copyright: Copyright American City Business Journals Jul 2,1999
