Answer to Question 1
From a conflict perspective, business cycles are the result of capitalist
greed. In order to maximize profits, capitalists suppress the wages of
workers. As the prices of products increase, workers are not able to
purchase them in the quantities that have been produced.
The resulting surpluses cause capitalists to reduce production, close factories, and lay off
workers, thus contributing to the growth of the reserve army of the unemployed, whose
presence helps reduce the wages of the remaining workers. In some situations, workers
are replaced with machines or nonunionized workers. Sociologist Karl Marx referred to the
propensity of capitalists to maximize profits by reducing wages as the falling rate of profit,
which he believed to be one of the inherent contradictions of capitalism that would produce
its eventual downfall.
Answer to Question 2
Functionalists view the economy as a vital social institution because it is the means by
which needed goods and services are produced and distributed. When the economy
runs smoothly, other parts of society function more effectively. However, if the
system becomes unbalanced, such as when demand does not keep up with production,
maladjustment occurs. The business cycle is the rise and fall of economic activity
relative to long-term growth in the economy. From this perspective, peaks occur when
business has confidence in the country's economic future. During a peak, or
expansion period, the economy thrives: Plants are built, raw materials are ordered,
workers are hired, and production increases. In addition, upward social mobility for
workers and their families become possible. The American Dream of upward mobility
is linked to peaks in the business cycle. Once the peak is reached, however, the
economy turns down because too large a surplus of goods has been produced. In part,
this is due to inflationa sustained and continuous increase in prices. Inflation erodes
the value of people's money, and they are no longer able to purchase as high a
percentage of the goods that have been produced. Because of this lack of demand,
fewer goods are produced, workers are laid off, credit becomes difficult to obtain, and
people cut back on their purchases even more, fearing unemployment. Eventually, this
produces a distrust of the economy, resulting in a recessiona decline in an
economy's total production that lasts six months or longer. To combat a recession, the
government lowers interest rates (to make borrowing easier and to get more money
back into circulation) in an attempt to spur the beginning of the next expansion period.
t'>concentration within a particular industry (such as Standard Oil Company). An
oligopoly exists when several companies overwhelmingly control an entire industry
(such as the music industry). A shared monopoly exists when four or fewer
companies supply 50 percent or more of a particular market (such the Big Three
U.S. automobile manufacturers).
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