TRESVISTA FINANCIAL SERVICES
GEM considers three major components of 2. Recession: A recession is marked by a fall in the
entrepreneurship: attitudes, activity and aspirations.
real GDP of an economy. It is usually initiated by
The new entrepreneurs, with the right attitude and
a macroeconomic shock – collapse of an industry
aspirations help improve the market conditions by
(banking, real estate), mounting fiscal debt,
developing their firms and providing opportunities to
collapse of the government, etc. There are fewer
others.
opportunities in the markets leading to stagnation
in the growth of the economy. People tend to be
We believe that the GEM model illustrates that
macroeconomics is correlated to entrepreneurial
activity at every phase: boom or recession.
Correlation between business cycles
and entrepreneurial activity in an
economy
People tend to be more
risk averse in economic
downturns
1. Growth: Under this phase an economy witnesses
more risk averse in economic downturns. The
a boom and increased activity. There is macrobusiness world sees job cuts leading to a decline in
level stability in the economy. Opportunities are
the disposable income of consumers. People spend
plenty and people are willing to take more risks.
less and thus demand declines. As spending drops,
The labor market is strong and banks are willing to
returns for enterprises drop further, leading to
lend money at competitive rates. The growth phase
further unemployment.
is marked by increase in innovations, opening up
of new market opportunities, and a generally high 3. Trough: The lowest point of the economy in the
business cycle is called the trough. National income
risk-appetite.
declines substantially, bankruptcy increases,
As the growth phase evolves, entrepreneurial
expenditure declines and economic activity
activity picks up such that it becomes the driving
slows down; leading to further increase in the
force behind growth.
unemployment. National inflation borders around
The growth phase is marked by
increase in innovations, opening up of new market
opportunities, and a generally high risk-appetite
October 2011 | INDUSTRY INTELLIGENCE
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