Business cycles and their relationship to economic growth

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Economy and Business

The economic business cycle is represented by the fluctuating levels of economic activity than an economy goes through during longer periods of time. The stages of the business cycle are growth or expansion, peak, recession or contraction, through, and recovery. It is not possible to determine the duration and frequency of each business cycle stage, as they vary in accordance with each economy and environmental factors that influence it. The economic growth process for most businesses takes place during the expansion stage of the business cycle. This economic growth refers to the development of companies regarding their sales, production capacity, and incomes.

The economic variables that can be analyzed in relationship with economic change are represented by gross domestic product, final and intermediate goods, real and nominal GDP, per capita GDP, the consumer price index, and others. Economic change depends on the evolution of these variables. Their flexibility or inflexibility determines economic change opportunities. In addition to this, these economic variables' evolution allows country's economies to address the opportunities provided by each stage of the business cycle. By analyzing these variables, governments can identify the economic change they are interested in producing in their economies.

1.3. Inflation has an important effect on economic growth. In situations where the inflation index reaches high levels, this means that consumers cannot afford to purchase most of the products in the economy in case. If the quantity of purchased products is reduced, the companies that produce them suffer important economic setbacks. In addition to this, governments are affected by the reduced levels of collected taxes that are applicable to purchased products, and to companies' incomes. Therefore, inflation can stop the economic growth process, and determine economies to enter recession. Lower levels of inflation can also produce such effects. Specialists in the field state that inflation rate should reach 2% in order to be beneficial to individuals, companies, and economies.

2.1. The fiscal policies from which economic strategies are developed are represented by different spending policies that can significantly influence macroeconomic conditions. The objective of these policies is represented by the state's attempt to control the national economy. Such fiscal policies are based on reducing or increasing tax rates, reducing or increasing interest rates, and reducing and increasing government expenditures level. Based on these fiscal policies, other authorities develop the economic strategies that are intended to reach the objectives established by fiscal policies.

2.2. The government has an important influence on economic growth in business. This is because company's activity and possibility of growth significantly depends on macroeconomic conditions within the country in case (Investopedia, 2013). These macroeconomic conditions are established based on the fiscal and monetary policies developed by governments. In countries with numerous types of taxes to be paid by companies, and that also reach high levels, companies' economic growth is strongly slowed down. In countries with fewer taxes to be paid by companies, they are encouraged to increase their investments, and to expand their business. This also helps improve national economies.

2.3. There are significant differences between public and private sector business. In the public sector businesses are limited to state owned enterprises. Such enterprises can be found mostly in developing countries. International organizations are interested in determining governments to develop privatization processes for these state owned enterprises. The disadvantage in public businesses is that they reduce competition in different industry sectors. This is because in most cases, such enterprises hold the monopoly in these sectors. The advantage is that governments have the ability to establish the prices in these sectors. In the case of the private sector, it is the supply and demand that establish prices.

3.1. Technological advancements represent one of the most important factors that can determine economic growth. Most economic development processes rely on innovation. Business applications that are successful can attribute their success on the market to technological developments intended to help them increase their production, reduce production costs, and improve employees' performance. However, technological developments are usually associated with high costs. This means that companies must make significant investments in order to address them. Most of smaller companies cannot make such investments. Therefore, it is likely that large companies benefit from innovation in different fields. This increases even more the difference between smaller and larger companies in different business sectors.

3.2. Technical developments have advantages and disadvantages. Regarding management and production processes, technological advancements have the advantage of allowing companies that apply them to increase their capacity, and to reduce their costs. This means they can produce more at smaller costs. This can help them significantly reduce the prices of their products, but also to increase their quality. This can intensify competition within industries where technological developments are easily available. The disadvantage of technological developments is represented by their high costs.

3.3. Intellectual property rights represent an important issue regarding technological advancements in business. This is because certain technological developments can be easily replicated by competitors. Therefore, it is important that companies protect their innovation through intellectual property rights. However, they cannot always reach this objective. This is because the rules and regulations in the field can be permissive in certain situations. The legislative field cannot keep up with all needs required by issues regarding technological developments because of the fast pace they are produced at.

4.1. Integration strategies refer to strategies developed in order to help companies integrate within their competition, and to expand their business. Most such strategies are technology driven. This is because technological developments help companies improve their activity, and reduce costs, which makes them more competitive. In addition to this, if certain companies address technological advancements, their competitors must use this approach also, in order to maintain or improve their position on the market. Other integration strategies are based on innovation. This is the case of companies that invest in innovation and set the trends in their market segments, while other companies are trying to replicate this process.