sseep13v

urn leads to more consumer demand,Nike Free TR Fit
and, through the accelerator effect, a further increase in the pace of investment
expenditure, and so on. This process occurs in the recovery and boom phases of
the business cycle. Similarly,nike lunar eclipse, during the recession and bust stages, a reduction in
investment leads to a fall in incomes,nike elite zoom, less consumer demand, more cancelled
investment programmes and so forth, with the multiplier and accelerator effects
working in reverse. Together the multiplier and accelerator effects exaggerate the
consequences for economic activity (real GDP) of any initial small changes in
consumer demand.
Less obvious, perhaps, is why a boom, once it is underway, comes to an end or
why, once an economy goes into a slump, the end result is not total economic
collapse. The explanation relates to turning points in the business cycle. In a
period of economic expansion economic bottlenecks eventually emerge, notably
shortages of labour and certain labour skills, raw materials and perhaps energy. In
addition, high investment may increase the cost of credit (interest rates). The
overall effect is to drive up the costs of firms?inputs. The rise in costs in turn

96

CONCLUDING REMARKS




Figure 4.12 The business cycle


pushes up output prices (referred to as cost-push inflation) leading eventually to a
fall in the rate of growth of demand for goods and services. Higher prices may
also lead to government action to deflate demand through fiscal and monetary
measures to prevent accelerating inflation. These deflationary pressures eventu-
ally affect demand in the economy, leading to a slowdown in planned invest-
ment expenditure.
A turning point also occurs when economies are in recession. Although
businesses will initially cancel investments when trading activity slackens, it is
very unlikely that investment will contract to zero. Some investment expend-
iture must occur if production is to continue at all over the longer term, if only
to replace the existing stock of capital as it wears out (depreciates). Therefore,
there will be a floor to the level of investment. In addition, after a period of eco-
nomic contraction cost pressures, including the cost of capital (i.e. interest rates)
and perhaps
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