Is The Business Cycle Avoidable? Can You Explain With The Example Of United States?

The history of business cycles in the United States shows a remarkable trend toward stability over the last 150 years. The period through 1940 witnessed numerous crises and depressions prolonged, cumulative slumps like those of the 1873s, 1890s, and 1930s. Since 1945, business cycles have been less frequent and milder.

What has changed? Some believe that capitalism is inherently more stable now than it was in earlier times. More important, however, is that a better understanding of macroeconomics now allows governments to take monetary and fiscal steps to prevent shocks from turning into recessions and to keep recessions from snowballing into depressions.

From 1984 to 1996, the American economy enjoyed the most stable period of its macroeconomic history. Inflation was low, and the economy experienced only one mild recession. A large fraction of workers and investors in financial markets had never witnessed a major business crisis during their adult years. By 1997, some people were wondering whether the business cycle was dead. Perhaps with wise management and free markets, they wrote, we have banished major recessions and inflations from the land.