Mexico Business Cycle - 1260 Words

Mexico’s Business Cycle The term business cycle or economic cycle refers to the fluctuations of economic activity around its long-term growth trend. It involves shifts over time between periods of relatively rapid growth of output-recovery and prosperity, and periods of relative stagnation or decline- contraction or recession. These fluctuations are often measured using real gdp. Despite being termed cycles, these fluctuations in economic growth and decline do not follow a purely mechanical or predictable periodic pattern. In recent years economic theory has moved towards the study of economic fluctuation rather than a business cycle . Some economists believe calling the business cycle a cycle to be a misnomer, because of†¦show more content†¦Since the nature of the financing flows to Mexico were short-run, the vulnerability of the economy increased due to these adverse shocks, resulting in capital outflows and a collapse of the exchange rate and output. 1995-99 saw a recovery of the economy after the implementation of an IMF supported adjustment program including support schemes for the banking industry, a floating exchange rate, the tightening of monetary policy, fiscal consolidation and restrained income policies. This resulted in an improvement of the economic situation and real gdp grew at about 5% per year. Examining of the occurrences in these periods can assist in identifying possible sources of Mexican business cycles. They include- Pol*i*tical cycles- Short term rule by autocratic governments, without reelection possibility, neglect long run benefits of public goods and confiscate assets that generate long term flows of resources The mayke distorted policy decisions and reduce bothe quality and quantity of public goods. Investors and consumers delay private decisions and economic activity declines as uncertainity in the economy increases proportionally to the end of the presidential term. In the context of autocratic govts, financial crisis is endogenous to the political cycle. Exchange rateShow MoreRelatedEcon 545 Project 2 Macroeconomic Analysis Essay3358 Words   |  14 Pagesï » ¿ Introduction Deciding to start a business is brave and adventurous. The first step to success is a brilliant, viable, profitable idea. 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