The common goal between the various business types is growth and gaining profit. The main phases that a business undergoes during its operations are “expansion”, “peak”, “contraction” and “trough,” which are determined mainly by the Gross Domestic Product (GDP) (McLean & Applegate, 2013). GDP uses data obtained from monthly business operations within to determine the growth rate of the economy. One of the factors that determine the Gross Domestic Product is the employment rate. The employment rates varies with the various business cycles undergone and is one of the ways used to determine the financial positions of a business during these cycles.
During the “expansion” stage, the business undergoes economic growth. The Gross Domestic Product rises during this period and is generally at a range between 2-3% (McLean & Applegate, 2013). Due to the growth of the economy, the unemployment rates decrease due to the increased demand for labor with increase in workload. The rate of unemployment in this period is at about 5%. The “peak” stage is the period that usually follows the expansion rate and occurs when businesses are at their optimum performance. In this stage, rates of unemployment are low due to a high business growth rate.
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The rates of unemployment begin to increase with the reduction in the economic growth of businesses. This is seen in the “contraction” stage and the rate of decrease of the Gross Domestic Product is used to determine the state of the company (McLean & Applegate, 2013). The company is considered to have gone into recession when the Gross Domestic Product of the previous year is greater by a quarter of the current years.’ The unemployment rate increases because the business no longer needs as many workers as it did when the rate of its growth was higher. The “trough” stage is signified by constant low economic growth and has the highest rates of unemployment due to the large lay-offs of workers in the contraction phase.
With growth of a business, the need for workers increases due to the growing workload. Therefore, the rates of unemployment are lowest when a business is undergoing expansion and peak stages in the business cycle. The rates are highest during the contraction and the trough stages when the business has undergone a setback in its growth. The level of unemployment can remain low if continued economic growth of business can be maintained.
- McLean, W. J., & Applegate, M. (2013). Economics and contemporary issues. Andover: Cengage Learning.
