Financial Crisis Is A Man Made Catastrophe

Against The Motion

By: WE THE RIDERS NOT THE DRIVERS 1. SHRIKANT RANA

What Is Financial Crisis ?

“The term financial crisis is applied broadly to a variety of situations in which some financial institutions or assets suddenly lose a large part of their value.”

TYPES OF FINANCIAL CRISIS 1. Banking crises :-

When a bank suffers a sudden rush of withdrawals by depositors, this is called a bank run.

TYPES OF FINANCIAL CRISIS 2. Speculative bubbles and crashes :-

Financial asset exhibits a bubble when its price exceeds the present value of the future income.

TYPES OF FINANCIAL CRISIS

3. Currency crises :-

When a country that maintains a fixed exchange rate is suddenly forced to devalue its currency.

GDP Is “ The Economy”

Economists also refer to GDP – total spending on goods and services – as total demand. In other words, the amount of goods and services accounted for in GDP is also approximately the amount demanded by households, business, and the government.

TYPES OF FINANCIAL CRISIS

4. Wider Economics Crisis :-

An economy may go through a period of slow or negative GDP growth.

WHAT IS BUSINESS CYCLE ?

THEORIES OF THE BUSINESS CYCLE

1. Monetary Theoryby Ralph G. Hawtrey - Attributes the cycle to the expansion and contraction of bank money and credit.

2. The Innovation Theory by Joseph Schumpeter - Attributes the cycle to

the clustering of important inventions.

THEORIES OF THE BUSINESS CYCLE

3. Psychological Theory by Prof. A.C. Pigou - Treats the cycle as a case

of people’s infecting each other with pessimistic and optimistic expectations.

4. Over-saving Theory by John Hobson - Claims to much income goes

to wealthy or thrifty people compared with what can be invested.

THEORIES OF THE BUSINESS CYCLE

5. Over Production Theory by Karl Marx– Several rival firms producing

the same commodity.

The External Theory

Find the root of business cycle in the fluctuation of something outside the economic system :-

1. Wars2. Scientific Development

3. Gold Discoveries 4. Population growth rate

The Internal Theory

Internal causes of business cycle are those, which are built in within economic system :-

1. Psychological Factors 2. Money Supply 3. Over Investment 4. Marginal Efficiency of Capital (MEC)

PHASES OF BUSINESS CYCLE

Source:- http://econfix.wordpress.com/category/economic-cycle/

PHASES OF BUSINESS CYCLE

1. Prosperity Phase 2. Recession Phase 3. Depression Phase 4. Recovery Phase

TRADE CYCLE

Definition of Trade CycleAccording to Keynes, "A trade cycle is composed of periods of Good Trade,

characterized by rising prices and low unemployment percentages, shifting with periods of bad trade characterized by falling prices and high unemployment percentages.“

Source:-http://econfix.wordpress.com

FEATURES OF TRADE CYCLE :-

1. Movement in Economics Activity 2. Periodical 3. Duration 4. Dynamic 5. Uncertainty to Businessmen 6. International Nature

TYPES OF TRADE CYCLE

1. Short Time Cycle 2. Major Cycle 3. Seasonal Fluctuations

4. Irregular or Random Fluctuation 5. Cyclic Fluctuation

WHAT IS BUSINESS CYCLE ?

•http://armstrongeconomics.files.wordpress.com/2011/04/armstrongeconomics-the-next-wave-042411-update.pdf

WHAT IS BUSINESS CYCLE ?

The Inflation-Unemployment Trade-Off

For much of the past century, economists and business people believed that there was a trade-off between inflation and unemployment.

Changes in the cycle

1. Lower inflation 2. Higher productivity 3. Faster response by business

Deutsche Bank, NBER : The history of business cycles in the USA

The next chart shows the duration of each economic expansion (i.e. between all US recessions) since the NBER started collecting statistics from 1854.

BUSINESS CYCLE HISTORY GRAPH OF USA

Source :- Deutche Bank, NBER

BUSINESS CYCLE

Source:- The Liberty Lesson's Channel, USA