Presented by

Dharma reddy Priya Laxmi

Parameswarao Nawin Kumar MohammadAshraf Nishad

Business Cycles

Business Cycles DefinedAccording to Haberler –The business

cycle in general sense may be defined as alternative of periods of prosperity and depression of good and trade.

The term business cycles refers to wave like fluctuations in aggregate economic activity particularly in national income, employment and output

FEATURE OF BUSINESS CYCLE

• A trade cycle is self generating• It occurs periodically• It is a wave like movement• It results in a crisis, the downward movement

is more sudden and violent than that of upward

4

PeakHypothetical Business Cycle

Peak

Recession Recovery

Real GDPper year

Growth trend line

Trough

Time

Four Phases of a business cycle

• Trough– The phase of the

business cycle in which real GDP reaches its minimum after falling during a recession

• Recovery– An upturn in the

business cycle during which real GDP rises

• Peak―The phase of the

business cycle during which real GDP reaches its maximum after rising during a recovery

• Recession– 2 consecutive

quarters of negative economic growth.

Characteristics of trough• In this period, bank credit is stopped and

consequently money supply also is reduced• All construction activities come to an end• The production of capital goods fall to low levels• The fall in prices distorts the relative price

structure• Many firms will be closed down on account of

accumulated losses

Characteristics of Recovery• The business people will now find that the

situation better, to start production• The producers order for new machinery or

repair the old machinery• When the workers get employment, they get

salaries and wages• The suppliers of raw material get revenue

Characteristics of peak• Money wages rise, profit increase and the

interest rates also go up• The demand for bank credit also increases• The resource owners also increase price of

resources • Everywhere there is jubilation

Characteristics of Recession

• There is a fall in the level of income and output

• Unemployment start increasing• There is a fall in income , expenditure, prices

and profit• Decline in bank credit• Pessimism starts prevailing among investors

CLASSIFICATION OF BUSINESS CYCLE

• Major business cycles

• Minor cycles

• Minor cycles

• Building cycles

Measures to control the evil effects of business cycle by business firms

• Preventive measures – Preventive measures refers to those measures which would be adopted particularly during the period of expansion for regulating business and to avoid unwise experience in the future

• Relief measures - Relief measures refer to those measures which are formulated to help in the recovery of a firm during the period of contraction

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