How U.S. Government and regulatory bodies can manage business cycles Essay

How U.S. Government and regulatory bodies can manage business cycles - Essay Example Business cycles can be defined as larger fluctuations in the economic activities or in the production of goods and services over a long period of time. It is sometimes known as economic cycle and is often associated with periods of high economic growth. The business cycle therefore consists of periods of economic booms as well as periods of economic recession or decline. The measurement for the business cycle is often done by the government through the measure of the Gross Domestic Product (GDP) of a particular nation. It is however important to note that even though it is termed as a business cycle; it does not follow ant pattern or any mechanically predictable pattern (Lynch, 85). In this context, it is therefore difficult to tell what pattern or direction the future cycle will take. This presents a challenge to the managements of the business cycles and call for better ways of forecasting. The explanation of the causes of the business cycles remains some of the controversial issue s in the analysis of economic growth in many economies (Hill, 320). One of the most common known causes of business cycles is the disequilibrium commonly known as the Keynesian theory. This theory is based on the argument that the fluctuation in the economy often begin because of lack of demand for the workers or labor. The argument here is that labor market or demand for labor do not adjust immediately but take very long time and hence it is difficult for the government to adjust appropriately and at the right time (Agnew, 197). The lack of demand for workers often adjust after very long period of time and the result of this is that it takes time. Moreover, the wages for labor and the prices are sticky as some are not easily adjustable and hence it takes very long time for the labor market to respond to the demand. â€Å"If output goes down it is due to that market fails to clear pushing the economy into recession† (Brentani, 109). This explains the downwards and the upward trends in the economy that forms the business cycles witnessed not only in the United States of America but also in the other nations across the world. The real business cycle theory on the other hand asserts that the changes or the fluctuations in business occur as a result of real factors. It is important to note that this theory believes that the government should not take part in controlling the market forces. The market forces of demand and supply should be left to adjust on their own (Treve, 72). The intervention of the government through the monetary as well as fiscal policies is not necessary, because the economy is capable of adjusting to the changes on its own. This theory also puts more emphasis on the substitution of labor and technological shocks as the major causes of business cycles. Failure of the economy to adjust to these changes would therefore lead to economy moving to recession. With regard to this theory, the rates of changes or the degree to which workers resp onds to incentives determines the supply of labor. Fluctuations in the level of technology also have serious impacts on the labor productivity because it affects the incentives (Knoop, 251). The high rise in technology would improve the productivity of labor and hence the real wages would rise as well. This would then result into the increase in the output and rates of employment and vice versa. This theory has also considered other factors like terrorism, disasters, political unrests, weather conditions among other factors that can affect output of an economy. In this way of argument, money does not impact on output neither does output impact on money and hence both move together in the same direction (Knoop, 253). Real business cycle theory is thus very important in the understanding of business cycle theory. However, just like any other theory, it is not perfect and has its own limitations. The

Evaluate Porter's concept of the 'diamond' as a tool for analysing the Essay

Evaluate Porter's concept of the 'diamond' as a tool for analysing the competitive advantage of nations, assessing its the - Essay Example Nations have competed for resources or to establish their supremacy over others. Historical evidence for this can be traced to the age old rivalry of England and Scotland to the present day rivalry between USA and the Soviet Union in the cold war. However in the present context nations are fighting over the aspect of economic power which is the backbone for success to a nation. An economic might implies a strong nation with enough resources to sustain its population or to maintain a strong military power. The case of United States of America is a classic example in this regard. The nation has the unique status of being the sole economic and military superpower of the world. There have been numerous theories to suggest as to what may be the possible reasons for such supremacy. It has been widely stated that the prosperity of a nation is built and generated over a period of time rather than being acquired. Michel Porter (1990) also stated that the prosperity and success of a nation is not created by virtue of its physical resources which are a far critique from the laws of economics. Alternatively it has been argued that the competitive advantage and prosperity of a nation in the modern world depends on the ability of the nation to constantly develop and create new ideas which are distinct from the others (Porter, 1990, p.73). The case of Japan is a classic example in this regard, as it has emerged as one of the world’s mort prosperous and successful nations without having access to key resources. A deeper analysis into the success story of Japan reveals the innovativeness of its business organizations to deliver more value to the products. This value results in creating economic value and goodwill. Numerous examples of innovation can be traced to the nation including success story of organizations like Honda, Toyota and Sony which have created a competitive advantage and have carved a niche for themselves as well as the nation of their origin. Innovativen ess of the nation is also reflected from the fact that successful management techniques like Kaizen which have become the standards for present day business organizations (Ankli, n.d., p.233). The present study would analyse the competitive advantage of China in its pursuit of being and economic and military superpower. The choice of the nation assumes significance considering the fact that it is the fastest growing economy of the world. The growth of this nation has largely been attributed to the skill set of its large labour force which offers a supply of cheap labour. The nation has emerged as a hub for manufacturing with almost every major organization having its manufacturing facility in the nation. Another important aspect apart from the labour force is that of government policies. The liberalisation policy of the nation along with the unique application of the aspect of Special Economic Zones has transformed the nation into the fastest growing economy of the world having an a nnual GDP growth of approximately 8.7 percent as of 2009 which is being valued at approximately 4.814 trillion US dollars as of 2009 (US Department of State, 2010). The following sections would try to analyse the competitiveness of the nation on the basis of the Diamond model proposed by Porter as well as a comparative analysis with other