The exploration of the causes of business cycles grew interested after an increase in the severity of economic depression caused concern in the late 19th and early 20th Centuries. Sunspots have been blamed to be the causes of recessions in that they affect the quantity and quality of the goods produced owing to the fact that there are severe weather conditions during these times. An economic trend may also be influenced by the pessimism and optimism of business leaders according to a theory by Arthur Pigou. Two major components of business cycles include production and consumption. These form the basis and determine the economic trend.
More particularly, during recessions, there is an inequality distribution of income which causes declines in the economy. The poor cannot afford goods and therefore demand for goods falls, while the rich end up accumulating savings because they cannot reinvest in production due to the low demand for products. In order to end the 2007-2009 recessions, I would have proposed as the president of the United States that the unemployed resources be directed into more productive areas as quickly as possible.
During the recession, the most productive resources in a country must be employed while the less productive are not employed. It is important to identify the least productive sectors in an economy, and this can well be accomplished during recession times. Passage of appropriate laws that could allow rectification of problems related to inflation. These relate to the interest rates offered by banks, among other solutions. The government can use the appropriate monetary policy to dampen the overall business cycle, and here, care must be taken so as not to have negative impacts on business. The importance of the supply of money in the economy in appropriate amounts depends on the decisions made by the government. These decisions in turn influence the availability of money or the ease of borrowing of this money by businesses because many depend on borrowing to operate in businesses.
The cycles of business will be affected by decisions touching increase or decrease capital investments by executives, which are in turn influenced by the interest rates. The government must therefore force the adoption of policies that will favor appropriate rates of rending as well as interest rates for money borrowed. Unfortunately, policy making is a process that can be considered as long and taxing sometimes. It is considered that policy making is a process that is prone to public opinion and politics. The government must make sure that the forces determining the adoption of policies, such as those that influence the passage of bills, are as neutral as possible to allow the adoption of appropriate and “for-good” policies to reduce the possibility of the negative influence of politics on business.