Economic growth results in more labor time being hired, more raw materials and machines purchased and employed, and more loans taken out by capitalist firms to finance new projects. However, an economic expansion implies increasing output and this increased output can place downward pressures on output prices. This would particularly be the case if new firms were entering existing markets. We would expect such to be the case during good economic times when demand for products and services is growing. As long as the barriers to entering a market are not so high as to make it unprofitable to enter that market, then one would expect economic expansions to coincide with increased competition.
Increased competition places downward pressure on output prices.
Thus, the rise in costs often cannot be compensated for by higher output prices and the result is a squeeze on capitalist profit rates. This is the catalyst for turning the economic expansion into an economic recession. Falling investment in new plants and equipment may result in fewer orders for intermediate goods. As intermediate goods producing firms lose sales, their inventories build up. The boards of directors of these firms may then order their managers to cut back on production and lay off workers.