ABSTRACT
Nations seek economic growth, full employment, and price-level stability as their major macroeconomic goals. Business decisions are made in the context of the macroeconomy of a nation. Firms take their cues from the economic environment in which they operate. When favorable macroeconomic conditions prevail, businesses expand operation and output. Contractions in the economy generally lead to slower growth patterns. Long-run economic growth has not always been steady as factors such as inflation, unemployment, recession, and depression have impacted it negatively. As was pointed out in Chapter 2, long-term trends, seasonal variations, cyclical movements, and irregular factors combine to generate widely divergent paths for businesses in an economy. Given these conditions, how are businesses to predict future growth and contractions in the economy? In this chapter we will discuss specifically those cyclical linkages that bind the economy together during a typical business cycle, and how our knowledge of these linkages help us in making good forecasts at the industry and firm level.
