Business Cycle

Tanzania Business Cycle. Tanzania is one of the poorest countries in the world. According to the join Nations data approximately 36% of the orbiculate population (43. 7 cardinal people) lives below the p everyplacety line. This signifies that the per capita income of Tanzania is relatively low. The Tanzanian sparing depends mellowly on agriculture, which makes up 40% of the Gross Domestic Product (GDP), provides 85% of exports and employs intimately 80% of the labour force. The remaining 20% is employed either in tourism, construction, mining or the service sector.Although agriculture has bring forwarded Tanzanias economy, hurdles slake exist collectible to the poor infrastructure of the verdant. However, the World Bank and international Monetary Fund (IMF), together with hidden foreign companies are adopting measures to check the country in order raise its GDP, and have a sustainable festering cast. (Roubin world-wide Economics 2012). The line of descent cycle rep resents quaternary phases that the economy of a country goes through oer a breaker point of time, moving away from it actual harvest-feast trend as suggested by throw 2000. These include a) depression, b) recovery, c) boom and d) recession.The graph (1) in Appendix A shows, how a economy moves through the four stages, moving away from the actual attachment trend. At each stage the economic activities and the total output signal produced by the economy fluctuate. In addition to that, at each stage the macro economic variables, which include pomposity and un business enterprise, excessively fluctuate. The wealth of the country in addition fluctuates at each stage signifying that at each phase of the line of credit cycle the aim of consumption, coronation, government expenditure, exports and imports fluctuate. (Gant 2000). Below the graph represents Tanzanias business cycle from 1960 to 2011.The graph represents the four phases of the business cycle gibe to Tanzanias economy, too represents how the economy moves away from its actual process trend. represent 1 Bigsten and Danielsson(2011) This essay result firstly describe Tanzanias progress through the four economic phases over the time frame of 1960-2011. Thereafter it will discuss how the dissimilar macro economic variables fluctuate during each stage. In particular, this essay will focus on the macro economic variables of unemployment, rising prices, investment, output set outth (including the components of meat demand and supply) and will also consider exports.Depression is the catamenia that falls betwixt recession and recovery. This is the plosive when the economy faces mellow station of unemployment, negative net investment, low directs of exports and falling demand for consumer goods and services, as head as capital goods. (Grant 2000) This is the period when the output aim falls over a period of time and the economy of the country is at the worst level of growth. This i mplies that the aggregate demand for commodities produced will be relatively low. At this stage the economy will experience a negative growth enjoin, then the country will not experience economic development.Instead the country will experience impoverishment as the circular flow of income in the economy is at a minimum. (Grant 2000) As shown in the graph above, harmonize to the Tanzania economic business cycle, it shows that during the period of independence in 1960s, the economy experienced a negative growth stride of -4. 2% and had a per capita income cast of 7. 1%. In addition to this the inflation rate was relatively high at 7. 8% as stated by Bigsten and Danielsson (2011). The situation in which the rate of inflation is relatively high and the countrys growth rate is negative is known as hyperinflation.Hyperinflation move ons when the economy highly depends on imports and the countrys notes has lost its value. (Investopedia 2012). This occurred because Tanzania had just been freed from the colonial British rule and, had been taken over by the father of the nation, J. K. Nyerere. The country accordingly had to adopt various refine policies in order to boost the economy. (Bigsten and Daneelsson (2011)). By the early 1980s Tanzania was heading to an economic crisis, collectable to the war between Uganda and Tanzania, which climaxed in1978. (EISA2010).During this period of warfare, Tanzania faced a reduction in its exports. In addition to this, thither were low levels of investment and low levels of proceeds, which decreased the consumption level in the economy. All these factors light-emitting diode to a fall in the aggregate demand and supply in Tanzania. The negative growth also caused the Tanzanian Shilling to depreciate by 25% in 1984, where the wages level decline, thus implying there was a high rate of unemployment, together with that the inflation rate was at 40%, as can be seen on the graph (2) in appendix A. (EISA 2010).According to Rutas ita 2004, the high rate of inflation occurred due to the depreciation of the Tanzanian Shilling, which was brought more or less by the situation of hyperinflation as the currency lost it value. The effect of this on the country was vast as there was a large dependency on imported products that included oil. Tanzania consequently fell into deep economic crises mainly due to the oil price shock, the war between Uganda and Tanzania fall in exports and the depreciation of the local currency. (Noni 2011) retrieval is the period between depression and boom.This is the period in an economy when reforms occur which tends to boost consumption levels, increase production, increase net investment, increase inflation rates and decrease unemployment rate. Overall, during recovery period the government implements various reform policies, in order to boost the economy and have a absolute lasting growth in terms of the GDP growth rate (Grant 2000). According to the Tanzanian growth cycle, Tan zania has adopted several reform policies, to waive the economy to have a stable growth rate that would last lead to its peak period.Soon after its independence from British rule, as suggested by Noni (2011), Tanzania established commercial banks in November 1970,with the main aim to facilitate investment by providing medium and long term loans, in order to boost up the economy of the country, through the industrial sector. Tanzania however, is said to have a growth rate of 4. 2% after 1986 through the reform polity on macro stability (Shanghai Poverty Conference). In addition to this, in order to reform the economy, the Tanzanian government adopted various policies to disgrace the poverty level in the county.Between the 1994 and 2002, through the adaptation of the policy, the level of poverty trim down by 28%. The rate of inflation reduced from 30% during the 1980s and early 1990s to a single digit in the late 1990s, as seen in the graph (2) on Appendix A. As suggested by Shan ghai Poverty Conference, the introduction of various policies by Tanzania boosted the economy, as it created new investment, both private and foreign direct. The policy also created employment began to expand the economy.The reforms also improved the balance of payment, which stab conduct the exchange rate to support the inflation rate to reduce to a single digit in 1999 being 7. 9%, as the economy was less dependent on the imported productions, and also because of the improvement in balance of payment the shillings gained value, thus stabilizing the economy to a certain level (Rutasitara 2004). This implies that boilers suit production level to increase, which signifies that the aggregate demand for the products production would also increase, bring an overall increase in the consumption level.Thus the country has experienced a smasher rate of economic growth over the time frame of 1962 to 1976, 1984 to 1995 and in conclusion from 1998 to 2011. The fact that the countrys overal l economy has been maturement signifies a steady flow of money circulation in the Tanzanian economy. Boom is the period in the economy that comes after recovery and before recession. During this stage of the business cycle, goods and services are at high demand. Also there is a high import and export rate, the inflation rate is relatively high and employment is at the peak.This stage of the economy is when production is at its highest level and thus the expectation of profit is relatively high. (Grant 2000) Referring to the graph above, between the days 1960 and 2011, the Tanzanian economy has been recovering showing a significant growth overall in the economy. Tanzania experienced a significant growth rate in 1966 when the growth rate peaked to 12. 8% (ESED International). Thereafter, the economy has also peaked from the year 2000 to 2011, with an average growth rate of 6. 6%, over a period of 11 years.During this period the average inflation rate was 7. 25% (ESDE International). During this period Tanzania had found natural resources including gold and natural gases which has led to the development of its infrastructure. The industrial sector grew by 9. 2% in 2007, and was estimated to grow by 10% in year 2008, as suggested by C angstrom unitbell and Christie (2010). Tanzania also showed a great improvement in 2010, performing well in foreign exchange reserves tourism sector. The country has collected $3. 7 billion reserves by September 2012 (The Citizen 2010).Furthermore, the country has taken various measures to improve its growth, as stated by Business instruction door (2012). For ex deoxyadenosine monophosphatele, in the year 2010, there had been more development under private sectors, which benefit the investors, and allow investment to occur in the country, which would bring about employment opportunities. Overall, since the beginning of the twenty-first century Tanzania has experienced a great improvement in terms of the GDP growth rate. (Campbell and Christie 2010) Recession is the period between boom and depression.This is the period when the economic growth slows down in the end attaining a constant level in the economy. This is the phase where the rate of unemployment would rise, trance the rate inflation rate would decrease. During the recession period the economy is growing but at a low rate. (Grant 2000). According to the graph above, Tanzanias economy faced a recession during the year 2008. This occurred due to the global financial crises of 2008 that originated from the United States of America caused a general fall in the level of output.This effected Tanzanias economy as this caused fuel prices to increase, which led to an increase in price in all the sectors of Tanzanias economy, do poverty to increase. According to Ngowi (2010), the crises mainly affected the low income earns countries (such as Tanzania) as they are highly financially dependent on the developed nations. Furthermore, due to the financial crise s, according to Ngowi (2010) the growth rate predicted by Tanzania reduced from 7. 8% to 7. 5%, in 2008.The investment level also decreased by 10%, together with the level of exports reduced by 44% in cotton industry, 30% in the tourism industry and 50% in the coffee industry. The reduction in all the main economic activities of the country caused the growth rate of the country to decrease. The average inflation rate over the period 2009 to 2011 was 8. 2% (ESDS International). Overall the consumption of in the economy reduced considerably. The financial crises of 2008 did effect the economy of Tanzania, but not at a vast level, as stated by Ngowi (2010).In conclusion this essay has discussed the four phases of a business cycle, showing how an economy of a country (Tanzania) moves through the four stages over a period of time. Overall, Tanzanias economy has been stable since the country redeemed its independence from British rule However according to president Kikwete (2011), the gov ernment has come up with a 5-year government think in order to ameliorate the countrys economy to a middle income country, with an average GDP growth rate of 8% for following 5 years and targeted growth rate of 10% from 2016 to 2025.Appendix A graphical record 1 Graph 1 Google image, the business cycle. Graph 2 Graph 2 ESDS Data Change in inflation rate on27th July 2012. indication 1. Bigsten A. , Danielsson A. (1999) Is Tanzania an emerging economy? A report for the OECD projectEmerging Africa. Online. easy at http//www. investmentcompact. org/dataoecd/40/30/2674918. pdf Accessed on twelfth July 2012. 2. Business Development Gateway (2009) Your Gateway to Business success Fanikiwa ki-Biashara. purchasable at http//www. bdgtpsf. com/ Accessed on twelfth July 2012 3. 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Investopedia (2012)Hyper Inflation Definition of Hyper inflation. Available at http//www. investopedia. om/terms/h/hyperinflation. aspaxzz20XRP0LOi Assessed 12th July 2012 9. Ngowi (2010) The Current Global Economic Crisis and its impact in Tanzania. African Journal of Business Management. 4(8) pp 1468 1476. Online Available at http//www. academicjournals. org/AJBM/PDF/pdf2010/18July/Ngowi. pdf Accessed on12th July 2012 10. Noni, P. (2011) Implementing Successful Reforms and Transformations in DFIs The Experience of Tanzania investment Bank Limited. Tanzania Investment Bank Limited. Online Available at http//www. adfi-ci. org/news/Presentation_by_Mr_Noni_TIB. df Accessed on 12th July 2012 11. Roubin Global economics (2012 )Tanzania Economic profile Back ground. Available at http//www. roubini. com/briefings/119199. php Accessed on 12th July 2012. 12. Rutasitara, L. (2004) Exchange rate regimes and inflation in Tanzania. Africa Economic investigate consortium. 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