The economic cycle is the long-run economic fluctuations that impact the productivity of the economic sectors. The cycle is mainly divided into different phases; the expansion phase is characterized by huge capital investment and revenue growth. Firms may not experience profitable moments, but the potential to make huge profits are shown. There is a prosperity phase where the firms maximize their productivity and profit levels. During this stage, firms attain abnormal profits. The contraction phase is characterized by profit reductions but no loss is uncured. The recession is the final phase where firms experience loss in their operations.
The economic recession significantly affected the construction industry causing huge losses to the players; appropriate government policy should be implemented in order to reverse the condition. Considering the high employment level in the industry, the industry’s downfall has a huge negative impact on the overall UK economy. Expansionary fiscal policy can help stabilize the economy since the UK government will be able to boost the construction firms. The policy will assist the industry to continue with its operations and thus retain the employment level.
The expansionary fiscal policy increases the government expenditure while at the same time reducing taxation. The reduced taxation act as an advantage to the firms since it reduces their operational costs. The government usually influences aggregate demand in the economy by implementing fiscal policy. The policy however contributes to a budget deficit as the government will spend more than the revenue collected. This policy is used in case the government wants to stimulate trade in the economy. The policy is supported by the macroeconomic theory which deals with the performance and behavior of the entire national economy.