Reference no: EM132789741

4 Phases of the Business Cycle

• Peak - An economic boom where total economic output or GDP will be at its highest level, employment will be high, real GDP will be growing 3% or higher for more than two consecutive quarters, and there will be higher interest rates and possibly higher inflation (Rasmussen College, 2020).  
• Recession - An economy that is experiencing high levels of unemployment, two or more consecutive quarters where real GDP has dropped, and interest rates and inflation levels will be at lower levels (Rasmussen College, 2020).
• Trough - This is when the economy has hit its lowest level of the business cycle and would resemble a depression. The economy would have double-digit unemployment in the teens, interest rates and inflation levels would be lower than experienced in a recessionary phase of the business cycle, and real GDP would experience negative real GDP growth (Rasmussen College, 2020).
• Recovery - Real GDP growth will begin to rise, employment will begin to rise, and interest rates and inflation rates will begin to rise moderately. A country in this phase has an economy that is prospering, and consumers' standard of living is improving as the economy moves towards full employment (Rasmussen College, 2020).

Mexico is currently in the recession phase of the business cycle. This is because in 2019 the real GDP growth rate was -0.3%, and in 2020 the GDP annual growth rate was -4.5%. This can be largely attributed to the pandemic, but it also shows that Mexico was headed in this direction anyway because of the decline in 2019.

Unemployment

The labor force consists of employees who are unemployed and employed. Unemployment consists of consumers who are not employed and are not working in the private or public sector. Unemployment is calculated by taking the number of consumers who are unemployed and dividing it by the labor force (Rasmussen College, 2020).  

Different Types of Unemployment

• Frictional - This implies that consumers have transferable job skills, but it may still take time to find employment or require re-location (Rasmussen College, 2020).
• Seasonal - This refers to consumers who work in a sector that is seasonal and not available throughout the year (Rasmussen College, 2020).
• Structural - Individuals who are structurally unemployed have mismatched job skills. This includes people who lack education and/or job skills to apply for current employment opportunities are considered structurally unemployed (Rasmussen College, 2020).  
• Cyclical - This refers to unemployment that is caused when an economy contracts. Unemployment will rise during the recession, and fall during recovery (Rasmussen College, 2020).

The type of unemployment that has the greatest impact on Mexico is structural. This is mainly because of the few advancement opportunities available. It can also be attributed to low real wages, high underemployment, and inequitable income distribution.