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Effects of Business Cycles

Updated on August 7, 2009

During bad economic times like recession and depression, various sectors and individuals are affected in different ways. For instance, those who produce capital goods like trucks, buildings, farm machines, and so forth are greatly affected in terms of production and employment. Firms have no reason to buy capital goods when economic or business activities are down. Their capital goods are not operating at full capacity. In case, such facilities need replacement, firms just repair them. As a result, expenditure on new capital goods greatly declines. Hence, the various industries which manufacture such capital goods suffer from very low or negative sales. Many of their employees have to be laid off due a tremedous fall in production.

In the same manner, industries which produce consumer durables like cars, refrigerators, gas ranges and other home applicances are adversely affected during bad economic times. Consumers tend to be economical. They are forced to be just satisfied with their existing cars and appliances. They just repair them instead of purchasing new ones. Obviously, such consumer attitude has negative effects on car producers and appliance manufacturers. Both production and employment fall.


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