47¡¢The Ch______ of the Period of Prosperity During a period of prosperity a rise in production b***mes evident. Employ ment, wages, and profits increase correspondingly. Business executives express t heir optimism by investing to expand production. As the upswing continues, howev er, obstacles begin to occur that impede further expansion. For example, product ion costs increase; shortages of raw materials may further hamper production; in terest rates rise; prices rise; and consumers react to increased prices by buyin g less.

48¡¢The D______from the Period of Liquidation to Depression As consumption starts to lag behind production, inventories accumulate, ca using a price decline. Manufacturers begin to retrench; workers are laid off. Su ch factors lead to a period of liquidation. Business executives b***me pessimist ic as prices and profits drop. Money is hoarded, not invested. Production cutbac ks and factory shutdowns occur. Unemployment b***mes widespread. A depression is in progress.

49¡¢What H_____ during the Period of R***very R***very from a depression may be initiated by several factors, including a resurgence in consumer demand, the exhaustion of inventories, or government ac tion to stimulate the ***nomy. Although generally slow and uneven at the start, r***very soon gathers momentum. Prices rise more rapidly than costs. Employment increases, providing some additional purchasing power. Investment in capitalª²go ods industries expands. What H during the Period of R***very R***very from a depression may be initiated by several factors, including a resurgence in consumer demand, the exhaustion of inventories, or government ac tion to stimulate the ***nomy. Although generally slow and uneven at the start, r***very soon gathers momentum. Prices rise more rapidly than costs. Employment increases, providing some additional purchasing power. Investment in capitalª²go ods industries expands.

50¡¢The C______of the Business Cycle In fact, business cycles do not always behave as neatly as the model just given, and no two cycles are alike. Business cycles vary considerably in severit y and duration. In the United States the major cycles have lasted slightly longe r than eight years, on the average. Minor cycles have a shorter span, generally from two to four years. The American ***nomist Alvin Hansen accounted for 10 maj or and 23 minor cycles in the U.S. Between 1857 and 1937.

51¡¢Monetarism Monetarism is an ***nomic school of thought popular in the 1960s and 70s in the west. It came from an old school of thought in the 18th century. This old sc hool of thought was developed by Adam Smith, the f51(_____)of modern ***nomics. In the early 20th century, the Keynesian approach was a popular ***nomic pol icy. The central feature of Keynesian policy is that the government s52(_____) act to ensure that full employment is always maintained. It was offered a 53(_____)a solution to the large scale unemployment of the preª²war years and, having demonstrated some success in solving this p54(_____), it was adopted as the guiding princi ple for post war governments. During this time, however, inflation was increasin g and by the late 1960s and early 1970s it had b***me such a problem that a new approach was called for. And monetarism appeared to a55(_____) this call. Within the school of monetarism, many different versions coexist. However, central to the philosophy is a belief t56(_____) ***nomies should be left to thei r own devices and require the minimum a57(_____)of government intervention. Econo mic activity is the result of the interaction of all individuals who supply and d 58(_____) goods and services. Such activity is coordinated by the market, howeve r loosely the market is organized. In the w59(_____) of Adam Smith, there is an ¡°invisible hand¡± at work. Markets are assumed to be efficient, so that no one b60(_____)or selling things in the markets will be disappointed or feel cheated. The crucial point here is that markets should not be distorted, either by government intervention or large organizations (monopoly firms) which would dominate the process.

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