7/29/2019 Eeb - Business Cycle

1/12

GOOD AFTERNOON

BUSINESS CYCLE

7/29/2019 Eeb - Business Cycle

2/12

BUSINESS CYCLE

Business Cycle refers to the fluctuations(moving up & down) of the business

activities in a country.

Fluctuations

in production, employment,

and incomes of the people.

Fluctuations - maximum if government

role is minimal. Fluctuations Industrially advanced

countries.

7/29/2019 Eeb - Business Cycle

3/12

Definition:

KEYNES: Business cycle is a trade cycle

composed of good trade changing with the

period of bad trade.

Good trade - which has rising prices and

less of unemployment.

Bad trade - which has less or falling prices

and more of unemployment.

7/29/2019 Eeb - Business Cycle

4/12

Features o f Business Cyc le:

Trade cycle occurs Periodically in a regular

fashion (but time limit is not certain). Trade Cycle is Comprehensive - easily

understood, (if in one industry then all). -

Durable/non-durable.

Trade Cycle are like Waves in the sea.

upand downs output, employment and income.

(profit fluctuates) International in character.

Trade Cycle has important feature

Cyclicaldisturbances - Movement from prosperity

stage to depression short duration

recession to recovery long duration.

7/29/2019 Eeb - Business Cycle

5/12

Classification of Business cycles:

Periodically

time period is different.

4 to 5 years / 9 to 10 years.

Short business cycle: short waves up to 40

months. Kitchin Cycles Prof. Joseph Kitchin

Britain and USA.

Long business cycle: Long waves.

Kondratieff Cycles Prof. Kondrateiff

England and France long duration of 60

years - between 1780-1920.

7/29/2019 Eeb - Business Cycle

6/12

PHASES OF TYPICAL

BUSINESS CYCLEDEPRESSION:

First stage of a business cycle. Longer period of

business activity, 3 - 4 yrs (far below than normal).

Sharp reduction of production,

mass unemployment,

low employment,

falling prices,

falling profits, low wages,

contraction of money supply, business failure.

Business activity standstill manufacturing firms

losses, shut down, hit agricultural commodities,-

banks collapse.

7/29/2019 Eeb - Business Cycle

7/12

PHASES OF TYPICAL

BUSINESS CYCLE

RECOVERY (Reviv al):

Second stage - Starts when the point of

depression ends,

Demand for basic consumer goods still exists.

No Stocks - production starts slowly - workers

get employment,

Banks lend money, slow raise in prices.

Revival starts by government expenditure,

investment in new regions, changes in

production techniques, etc.

7/29/2019 Eeb - Business Cycle

8/12

PHASES OF TYPICAL

BUSINESS CYCLE

PROSPERITY (Full Emplo ym ent)

Third Stage increased production, high

capital investment in basic (important)

industries.

Expansion of bank credit,

High prices (demand inelastic) high profits

high capital formation FULL EMPLOYMENT,

Optimism among businessmen andindustrialists.

7/29/2019 Eeb - Business Cycle

9/12

PHASES OF TYPICAL

BUSINESS CYCLE

BOOM (Over Ful l Employment) Fourth Stage Rapid increase in business activity,

High stocks and commodity prices, high profits,

overfull employment.

Continuation of investment after full employment

raise in prices (inflation in economy).

Number of jobs more than number of workers.

Over optimism - Carries the seeds of self-

destruction (losses) , Problems in various sectors, lack of factors of

production will led to recession.

7/29/2019 Eeb - Business Cycle

10/12

PHASES OF TYPICAL

BUSINESS CYCLE

RECESSION : Fifth Stage Falling stage of boom period is

recession.

Feeling of over-optimism (more than sufficient),

create problems in business enterprises, Prices collapse,

slowly unemployment starts,

Initial in capital goods unemployment begins

spreads to other sectors/industries,

Fall in income, expenditure, prices and profits.

Land into depression.

7/29/2019 Eeb - Business Cycle

11/12

Business Cycles

DIAGRAM:______.

Business cycles are outdated.

Cyclical fluctuations are predicted in

advance and suitable steps are taken.

7/29/2019 Eeb - Business Cycle

12/12

Thank You