A Presentation on Business Cycle

7/29/2019 A Presentation on Business Cycle

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ByAbhra Mukherjee

Ankita DuttaAnuradha Tripathi

Pallavi SagarSonal Kamble


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It is associated with fluctuation in economic activitylike production, prices, employment

Business cycle is an alternate expansion andcontraction in overall business activity, as evident byfluctuation in measures of aggregate economic activity

such as the gross product industrial productionemployment and income


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Business cycle operates periodically

Business cycle synchronic affects all industries

Business cycle has both upward and downward

In business cycle fluctuations are recurrent in nature

Fluctuation not only in production but also in

employment, investment an, consumption, roi, etc

Consumption of non-durable goods and services do not

vary much

Profits fluctuate more than any other type of income


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recovery

PROSPERTYPROSPERTY

recession

recession

depression depression

recovery

o x

y

B

O

OM

SLUMPslump


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There are 6 different stages or phases in business cycle ,they are:

Depression Recovery

Prosperity

Boom

Recession

Slump


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Period in which the business activity is far below normal

Characterized by sharp reduction of production , mass

unemployment ,falling prices , falling profits , low wages ,

business failures decline in output or decline in production

All construction activities come to stand still.

Capital goods industries are affected


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It implies an increase business activity , slight

improvement of economic activity .

Production picks up slowly and gradually

Employment increases

There is a slow rise in prices and slow rise in profits

New investment takes place Recovery initiated by new innovations , government

expenditure , changes in production


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this stage is characterized by increase in production

high capital investment in basic industries

expansion of bank credit

high prices , high profits

new business enterprises

full employment


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it is the phase of rapid expansion in business activity

it results in high stocks , high commodity prices

high profits and overfull employment, highestcompetition , high bank rate

the continuous investment results in sharpinflationary rise of prices

this causes a sharp rise in prices of production. thenumber of jobs exceed the number of workersavailable (overfull employment)

boom is not as good as prosperity because itcarries seeds of destruction ,factors of productionbecome scarce with new rise in prices

industrialists begin to stay away from new projects

and even stop expansion of existing units.


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banks begin to panic and begin to withdraw loans

from business enterprises . more business enterprises fail

prices collapse

building construction slows down and unemploymentleads to fall in income ,expenditure, prices and profits.

once recession starts it goes on gathering momentumand finally assumes the shape of depression

the 1957-58 recession in USA was severe.


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Less production

Less investment

Less employment


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Cause of business cycleThere may be three reasons for business cycle

fluctuation-

Nominal demand shocks (due to variation in moneysupply)

Real demand shocks (shifts in consumption ,investment or fiscal policy not related to monetary

policy) Demand shocks.


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Control of Business cycleBusiness cycle can be controlled by the following ways:-

monetary policy fiscal policy

automatic stabilisers


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Monetary policy The Govt. may evolve a suitable monetary policy to

deal with this situation

The undue expansion of money supply could bechecked by a proper check against note issued

To control the bank credit the central bank could usethe various measures like bank rate, open market

operation, CLR, SLR moral suasion..

Fi i


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Fisca po icy

3 main measures of fiscal policy used by Govt. are

taxation spending

borrowings

During downswing the Govt. should not levy any taxesand reduce the existing taxes.

the Govt. should initiate public works project , thatwill increase employment such as construction of

roads , causals , parks, schools, etc. when the economy recovers the Govt. should raise the

existing taxes, levy new taxes and reduce itsexpenditure on public works.

A t ti t bili


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Automatic stabilisers

its an economic shock absorber that stabilises the the

cyclical fluctuation. one such device is the FEDERAL PROGRESSIVE

INCOME TAX in USA & INDIA.

this tax is so devised that people in higher income

are taxed at a higher rate . so in upswing whenincomes are rising people would pay more taxes.

another built in stabiliser is the UNEMPLOYMENTINSURANCE.

during this period of prosperity, the employerspay taxes to Govt. at high rates. During depression theGovt. lowers taxes and pays unemployment allowancesto unemployed persons making available more money

to people.


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Some facts about business cycle Different economies will experience different shocks

,and magnitude and duration of business cycles mayvary ,but it is inevitable.

It is aggregate phenomenon .Co movementcharacterizes them, i.e. .many economic variable sfrom different sectors and regions of the economyand also from different countries,display similar behavior at roughly same time.

Fluctuation in demand is major source of businesscycle volatility.


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A Presentation on Business Cycle