Economic Depression Essay Example | Topics and Well Written Essays - 500 words

Economic Depression - Essay Example Economists and policymakers are concerned with these fluctuations and their effects to the economy. A typical business cycle goes through the stages of peak, recession, trough and recovery. Each stage of the business cycle shows the effects of fluctuations in the level of output and employment in the economy. During peak stage, the economy is near or at full capacity, as reflected by high level of output, rising prices and full employment. This is usually followed by a recession which if severe and prolonged causes economic depression. Recessions are as irregular as they are common (Mankiw 1997). At this stage, there is a decline in the total output, income, employment and trade. This results from the contraction of the business activities of the sectors in the economy. Because of these downfall, the general price level is also likely to fall and if the economy cannot recover from this period, economic depression will occur. Economists continue to debate about the causes of economic depression. They argued that it is due to decline in spending on goods and services because of the decline income. Their view uses the spending hypothesis as their explanation. This hypothesis blames the uncertainty about future growth that makes consumers consume less and save more of their incomes. This is what exactly the problem of China now.