What is the extension
The expansion phase of the business cycle when the economy moves from a trough to a peak. This is the period when the level of business activity surges and gross domestic product (GDP) expanded until it reaches a peak. The expansion period is also known as economic recovery.
Expansion is one of the two main phases of the economic cycle; in others a reduction. The transition from extension to compression is the peak, and the transition from compression to extension trough. Extensions last an average of about three to four years, but they are known to last from 12 months to over 10 years. A big part of 1960-ies was a time of expansion, which lasted almost nine years.
Economists and politicians to carefully study the business cycles. Learning about economic expansion and reduction patterns of the past can help to predict possible trends in the future. If cash is scarce or interest rates high or low, and companies and consumers can borrow money to spend on goods and services influence how businesses and consumers react.
Examples of expansion and contraction
The expansion, or boom, occurs when the fed lowers interest rates and buys bonds on the open market to add money into the financial system. Bondholders to put their money in a Bank that would lend money to companies that purchase buildings and equipment and hire workers. Workers to produce more goods and services to meet consumer demand as the economy improves. Unemployment is low, and productivity and consumer spending high. The money flowing through the economy.
When the economy contracts, or busts, labor productivity falls, the business revenue will go down and companies lay off workers to cut costs. Unemployment rises and consumers spend less. When GDP decreases for two consecutive quarters is a recession. When productivity and profit is slowly growing, the economic recovery begins. Reduced unemployment, as consumers spend more and the economy starts to expand.
Since 1945, the US economy has gone through 10 phases of expansion and contraction. Periods of expansion 1975 and 1980, and 106 months in the 1960s. Durable industrial goods have been more affected than services, wholesale and industrial prices by more than retail prices.
Leading indicators such as the average workweek for manufacturing employees, claims for unemployment insurance new orders for consumer goods and building permits all give clues as to whether expansion or contraction occurs in the near future. Although not entirely accurate, knowledge of a particular industry or company can help prepare for changes in the economy before they happen.