In economies or business sectors, small sales-rate changes typically result in large investment-and-inventory changes {acceleration principle}|.
up
GNP changes direction {turning point} and goes up in response to unused production factors, too-low investment, and too-low inventory levels. In recession, unused capacity and labor lead to lower costs and excess supply, both leading to lower prices and increased demand. In recession, low investment leads to low prices and increased demand. In recession, high inventory levels lead to excess supply, and lower prices and increased demand.
down
GNP changes direction and goes down in response to limited production factors, too-high investment, and too-high inventory levels. In expansion, production-factor limitations result in reduced supply and higher costs, both leading to higher prices and reduced demand. In expansion, high investment leads to higher prices and reduced demand. In expansion, low inventory levels lead to reduced supply, and higher prices and less demand.
Social Sciences>Economics>Macroeconomics>Economic Cycle
6-Economics-Macroeconomics-Economic Cycle
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Date Modified: 2022.0224