This preview shows page 1. Sign up to view the full content.
Unformatted text preview: serves must be set aside? Profit – How much profit can reasonably be expected? EFFECTS OF THE BUSINESS CYCLE
The ups and downs of the business cycle affect the housing and mortgage markets especially through fluctuations in employment and inflation. Employment – During an upswing (recovery and prosperity), demand increases production, thereby increasing employment. During a downswing (recession and depression), employers decrease production due to lack of demand and employment decreases. Lower employment means less effective demand for all commodities, including mortgage money. Inflation – Inflation directly affects prices and the value of money, and has pervasive effects on public psychology as well as on spending patterns. • During an upswing, as the repressed demand is released, employers increase production to meet this demand, and employment is increased. In the interim of production's lag time, demand exceeds supply and prices increase, resulting in inflation. During a downswing, when prices rise to a point where demand is no longer effective, supply will exceed demand and result in lower prices (deflation), and decrease in employment (some unemployment is considered necessary to curb inflation). • Stagflation – A period of rapid inflation during a recessionary economy. It first appeared in the U.S. in the 1970s. Consumption remains strong
2-12 Licensing School for Appraisal, CPA, Contractors, Insurance, Real Estate, Notary, Nurse, Food Handlers, Tax and Securities 2. THE MONEY MARKET
because of the fear of further price increases, while production falls behind because of the fear of recession, overstocking, and high operating costs. FISCAL POLICY
The U.S. Congress influences the direction of the economy through the effect of government spending and taxation. The executive branch is also a major influence through budgets submitted to the Congress. The nation's fiscal agent is the U.S. Treasury Department. Government spending – During a recession, the government tends to increase spending to encourage consumption. Taxation – During recessions, tax cuts increase the available money suppl...
View Full Document
This note was uploaded on 12/30/2010 for the course SOC 101 taught by Professor Zhung during the Spring '10 term at Punjab Engineering College.
- Spring '10