In everyday society, companies are affected by the economy. The company either suffers or benefits depending on what kind of economy it is. This will depend on what kind of company it is, and what kind of market the business does well in. The Business Cycle is what determines this factor. It is a term used in economics to designate changes in the economy. Timing of the business cycle is not predictable, but its phases seem to be.
Many economists site four phases-prosperity, liquidation, depression, and recovery. During a period of prosperity, a rise in production leads to increases in employment, wages, and profits. Obstacles then begin to obstruct further expansion. Production costs can increase, helping create a rise in prices, and consumers buy less. Inventories accumulate, causing price declines. Manufacturers begin to diminish; workers are laid off.
Such factors lead to a period of liquidation, and money is hoarded, not invested. Production cutbacks and factory shutdowns occur. Unemployment becomes widespread. A depression is in progress. Recovery may be initiated by a reawakening in consumer demand or government action to stimulate the economy. Prices rise more rapidly than costs.
Employment increases, and people buy more. Investment expands. A new cycle is under way. (. com) (web) Business cycles do not always behave as neatly as the model just given, and no two cycles are alike. Apart from the traditional business cycle, specialized cycles sometimes occur in particular industries, as in the building construction trade.
Peapod, is an Internet grocer that provides online grocery shopping to various cities across the country. In an economy where unemployment is rapidly decreasing, anything that can allow people to get things done easily and swiftly are greatly appreciated. Since Americans work more hours than any other country in this world, Peapod can only benefit from everybody's inability to not stop working. Nobody has enough time to do the little things, like get gas, go grocery shopping, etc... Society is also willing to pay the extra bucks to have the groceries hand delivered to their doors because grocery shopping is a hassle and its annoying. No one likes doing it but it is something you have to do, might as well have someone else do it for you.
Peapod is a sure thing for the next millennium. Fannie Mae is a company that makes capital by lending money to people who need mortgages and by borrowing money at low interest rates. Fannie Mae is able to make money in any kind of economy. During times of low interest rates they make money on people who bought fixed rate mortgages at a time of high interest rates. They also have a hard making money during this time because their marginal percentage is smaller and they make less of a profit.
During times of high interest rates, they lose money on people who bought fixed rate mortgages at low interest rates. They also make a lot of assets during this time because they borrow from the federal reserve or banks at lower interest rates and lend money at high interest rates. Overall, Fannie Mae will profit during any kind of economy. Tiffany & Co. , the world's largest jewelry company profits when during a bull market and when people have an excess of money. Since, jewelry is not a necessity in life, so people can choose if they want it or not.
In today's market where most people are employed and people have additional money, Tiffany profits. People tend to buy the better things in life when they know they have an abundance of money. During times of recession, even though it has not occurred in the last decade, it is predicted that Tiffany would not profit. This happens because, unemployment would rise, the worth of the dollar would diminish, and people would have no discretionary income to spend on expenditures like jewelry. Since there would be no additional money to spend other than on necessities, Tiffany would suffer horribly and might even file for bankruptcy. This company definitely wants the market to stay where it is, without inflation, and never to go into a recession or weak economy.
The Business cycle theory matters simply because many people believe business cycles exist. This has not been a permanent belief. In the 19 th century, business cycles were not thought of as cycles at all but rather as spells of 'crises' interrupting the smooth development of the economy. In later years, economists and non- economists alike began believing in the regularity of such crises, analyzing how they were spaced apart and associated with changing economic structures. In society, there is a saying "history always repeats itself." That is what the business cycle is, a repetition of a cycle that has been going on for ages, from recession to recoveries to expansions and back again. It is something that will never end and will not stop recurring..