What causes a renewed demand in a recovery period and why is it necessary? Is it possible to predict the future demand? Will we see a rebound after the current economic slowdown and recovery period? The answer depends on the nature of business cycles. Recovery periods typically last between one and two years.
How can we tell if the current economic policy is causing renewed demand in a recovery period or will the economy bounce back stronger than it was before the recession began
Economic policy plays a major role in determining the direction of a country’s economy. Policy that is promoting higher demand usually leads to higher prices, which eventually leads to increased production and employment. Which event likely explains that event? Economic policy usually renews consumer sentiment and demand.
Why do higher prices lead to renewed demand in a recovery period, and why is this particular event likely to happen?
Higher prices imply that there is greater demand; and when there is increased demand, companies are more willing to invest in equipment and labor, increasing their capacity to produce. This increased capacity drives up prices, which, in turn, creates demand, again. Which event most likely describes the current recovery period that is expected to end sooner than later?
Economic policy can be described in four stages (stagflation, inflation, deflation, and recessions). Each stage of an economic cycle has four distinct phases: asset prices, income, productivity, and debt-to-equity ratios. Asset prices describe increases in stock prices. Inflation describes changes in the Purchasing Managers Index (PMI). Deflationary economic growth is likely to occur between any two of the first four stages of an economic cycle.
Stagflation, the first phase of an asset-price driven recovery, typically lasts approximately ten years
When business cycle bottoms out, the business cycle resumes higher rates of inflation-based financing, eventually reaching its historical highs. The recovery is characterized by rising housing prices, rising consumer demand, and higher interest rates for loans. As stated earlier, higher interest rates likely will lead to lower demand for assets, which leads to a recession.
The second stage of asset-price driven recovery is characterized by falling unemployment rates, which create lower demand for assets. Consumer spending decreases, but business investment increases, which leads to higher unemployment rates and lower home values. The third stage of the asset-price driven business cycle begins with declining unemployment and higher rates of inflation-based financing. Again, higher interest rates are required to maintain market conditions favorable for investment, which again leads to a recession if the cycle is interrupted. The fourth stage of the asset-price driven recovery is characterized by falling housing values and rising inflation, which make real estate investment opportunities difficult to obtain.
So, which event most likely explains renewed demand in a recovery period?
One way to recover from a recession is to address the source of the problem, which are usually a combination of falling housing prices, less competition, and higher rates of inflation. Real estate investment experts believe that the best time to invest is now, while most of America is still recovering from the recession. Historically, the four business cycles that occur in cycles one through four (a growth business cycle) typically last two years, with the exception of a few instances (such as the Internet bubble burst, and the shorter stretch of the Great Depression). In this case, the current cycle is considered the strongest cycle in over two decades.
Investors who make an investment in any one of the four phases described above (demand, supply, and accumulation) start by creating a position in the asset class that they believe will appreciate. They then use their experience and education to identify companies that meet their expectations, and trade with these companies until they fully recoup their losses, or exit the investment phase altogether. At this point, some investors may decide to sell their positions in order to minimize their losses, and others may continue buying until the accumulation phase is complete. The key is being able to determine which cycle will provide the best opportunity for accumulation before it is too late.