Final answer:
The four key factors influencing the business cycle are credit availability, government fiscal policy, business investments, and consumer confidence, each playing a role in either expansion or contraction. Economists use models and statistical methods to analyse the impact of these simultaneously changing factors on the market.
Step-by-step explanation:
The four factors that affect the business cycle include credit availability, government fiscal policy, business investments, and consumer confidence.
Credit availability affects the business cycle by influencing consumer spending and business investment. Easy access to credit can lead to increased spending and investment, leading to economic expansion. However, restricted credit can limit these activities, contributing to an economic slowdown.
Government fiscal policy, including taxation and government spending, can stimulate economic activity during downturns through increased spending and tax cuts, or cool off an overheated economy through tax hikes or spending cuts.
Business investments in capital goods and research and development can drive the business cycle. Increased investments usually signal economic expansion, while reduced investments can be a precursor to a downturn.
Consumer confidence reflects the optimism or pessimism of consumers regarding their future financial situation. High confidence can lead to increased spending and economic growth, whereas low confidence tends to result in reduced spending and potential contraction.
To deal with the problem of multiple changing factors affecting the market at the same time, economists use complex models that can incorporate numerous variables and employ statistical methods to isolate the effects of individual factors on market conditions.