In Economics, fluctuations are sporadic lows and highs in the measures of economic activity, such as Inflation and Unemployment. These variations affect wages, demand, and the general prices of raw materials in the Economy (Smith and Murphy, 133-148). There is two primary types of fluctuations, Seasonal changes (Trend) and cyclical fluctuations. Trends are observed in a short-term, but cyclical fluctuations could proceed for years. These changes could affect the economy adversely, and business managers and entrepreneurs should be ready to handle the economic variations.
Trends refer to short-duration movements in the economic indicators that normally follow a consistent pattern each year (Klein, 67). For example, Agriculture and fishing income are up during the summer seasons when there are main activities in those sectors. Retail stocks always rise during the festive or Christmas selling periods as businesses prepare for holiday shoppers and celebrations. From these examples, trends do affect price movement’s .Sometimes Trends are influenced by natural occurrences like rain and sunshine hence; it’s always seasonal. In Micro- Economics, trends may sometimes be occurring due to changes in determinants of demand as prices.
Cyclical variations are alternating phases of contraction and expansion that can persist up to 18 months or even longer from the peak to the trough of the cycle. Business and Consumer demand falls during contraction and rises during the expansion period. In several occasions, Businesses respond to contractions by cutting back on staff, reducing operating overheads (Airapetyan, Aleschenko and Arushanyan, 54). In some organizations, capital investment decisions are delayed during this period. For example, a manufacturing firm may decrease the number of production shifts while a retailer may opt to delay opening a second branch since demands are low. In economic expansion periods, consumer spending increases rapidly, which leads to increased demand for cars and other items. Manufacturers will respond to this by increasing production and hiring new staff, which may result in higher prices in the long run and supply shortages resulting to another cycle.
In the instance provided that “consumer confidence dropped in December and unless consumers start spending the recovery could be jeopardized”. This statement denotes an economic trend. It is a short term scenario since the fluctuation in the consumers’ confidence has just dropped in December. This means that maybe in November it was okay, or it will be better in the following year. At this period, most retailers are not happy since they accrue small sales and on live to be optimistic that there will be a positive change soon.
In the other instance provided ‘Australians spend excessively and do not save adequately, thus adversely affecting the nation’s economic health’ illustrate a cyclical variation in the expansion period. At this period, the value of money has reduced, and the looms a future rise in general prices of commodities and this will affect the economy. After a given period, prices will be higher, and the purchasing power of the Australian people will be changed and they will no able to spend that much. At this point, the cycle will start contracting slowly by slowly until it reaches a point when due to their low purchasing power, prices will reduce and the cycle continues.
Airapetyan, Mamikon Sergeevich, Natalya E. Aleschenko, and Vitaliy Vladimirovich Arushanyan. «(Experience In Analysis And Forecasting Of Cyclical Fluctuations In The Economy [On The Example Of The National Bureau Of Economic Research In Application To The Economy And The Anti-Crisis Policy Of Russia])». SSRN Electronic Journal n. pag. Web.
Klein, Lawrence R. Landmark Papers in Economic Fluctuations, Economic Policy, and Related Subjects. Cheltenham, UK: E. Elgar Pub., 2001. Print.
SMITH, JEREMY and CHRIS MURPHY. «Macroeconomic Fluctuations in the Australian Economy». Economic Record, 70.209 (1994): 133-148. Web.