Definition“The business cycle in the general sense may be
defined as an alternation of periods of prosperity and depression of goods and service”
- HarberlerIn simple words “ A business cycle represents the
different stages which every business organisation faces throughout its tenure, in the form of a wave like structure
MAIN FEATURESPervasive in nature,
Recurrent but not periodic,
Persistent
Each cycle differs in length and severity
Phases of the Business Cycle
The phases of the business cycle are known as:
GrowthPeakRecessionTroughRecovery
While fluctuations are in practice highly irregular, the most common illustration shows a standard periodic cycle.
GrowthCan be viewed as a “virtuous cycle”
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Sales Increase
Production Increases
Employment Increases
Income Increases
Causes of GrowthInclude the following:
business is newly formedmore branches of the business are openedneed for the product rises or is createdintroduction of new or improved product
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The PeakAccounts for the time when business activity has reached a
maximum, including:
full employment
level of output at or near capacity
Often causes higher prices
Acts as a transition point from growth to recession
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Causes for the PeakInclude the following:
boom in the economy
sudden need or want of the product
availability of product rises
the product is unique for the time being
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Recession• May also be referred to as contraction• Follows the peak• Is commonly defined as two consecutive
quarterly declines in GDP• Accounts for a decline in:
– total output– income– employment– trade
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RecessionOccurs in all companies
Rarely causes price level to fall
unless severe and prolonged, as in a depression
Differs from depression
depression occurs when GDP drops by more than
10% while a recession experiences a less severe drop
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Causes of RecessionInclude the following:
product falls behind in usefulness, technology or wantvalue of the dollar declinescustomer debt
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The TroughMarks the lowest levels during a recession
Accounts for the least amount of output and
employment
May be short or long lived
Ends the period of recession and begins growth
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Causes of the TroughInclude the following:
the product is severely outdated
need or want for the product is at an all time low
the product has not changed over time
many customers already possess the product
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The Recovery• Turning point from depression to expansion
• Steady rise in output, income, employment, prices
and profits
• Banks expand credit
• Revival slowly emerges into prosperity, and the
business cycle is repeated
Causes of Business CycleInterest rates
Changes in house prices
Consumer and business confidence
Multiplier effect
Accelerator effect
Inventory cycle
Measures of Controlling Business Cycle
Fiscal policy
Monetary policy
State Control of Private Investment
International Measures
Reorganization of Economic System