Global Economic Activity and Industry Analysis Our goal in this chapter is to an

Question

Global Economic Activity and Industry Analysis Our goal in this chapter is to answer some general questions about economic activity. For example: What is the business cycle? - How is economic activity measured? What is monetary and fiscal policy? How does economic activity impact sectors of the economy and the firms in these sectors? Answering these questions might help us anticipate economic movements, which in investments to choose for a particular time period. turn might be valuable for deciding which

Explanation / Answer

Question 1). Answer :- Business cycles are an alternate expansion and contraction in the overall business activity, as evidenced by fluctuations in the measures of aggregate economic activity, such as, the gross product, the index of industrial production, employment and income. In other words, Business cycle is the existence of alternating periods of prosperity and depression in an economy. There are five different phases or states of a business cycle as given under :-

a). Depression.

b). Recovery or Revival.

c). Prosperity or full employment.

d). Boom or overfull employment.

e). Recession.

Question 2). Answer :- The value of economic activity is measured in the terms of Gross Domestic Product (GDP) of an economy.

Explanation :- Gross domestic product (GDP) refers to the sum total of market value of final goods and services produced in an economy during an accounting year and it is inclusive of consumption of fixed capital (depreciation) in an year.

Question 3). Answer :- Monetary policy is the policy concerning money supply and availability of credit in an economy. It is regulated by the central bank of the country. Monetary policy measures include :-

(i). Quantitative measures such as bank rate, open market operations, cash reserve ratio (CRR) and statutory liquidity ratio (SLR), and

(ii). Qualitative measures such as margin requirements, credit rationing etc.

Fiscal policy is the policy concerning taxation and expenditure of the government. Fiscal policy measures include : - (i). Change in taxes (both direct and indirect taxes), and (ii) Changes in government expenditure (expenditure on public works programme etc.)

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