Relating Business Cycle To Romance Cycle “You look good. You look verrrry good.” Wedding Marchfor women Death March for men You decide to get married Gets engaged But with education a job is gained as well as a new house 1st date You become a happy family Must have good “meeting line” to get the first date. Jealousy sets in One loses a job Baby-5 months later But – he does nothing but make loud noises atone end, and has no discipline at the other end. She goes off to college. He uses the meeting line on unsuspecting freshmen girls
Expansion Expansion Recession Boom Peak Upturn Downturn Total Output Secular growth trend Trough 0 Jan.- Mar Apr.- June July- Sept. Oct.- Dec. Jan.- Mar Apr.- June July- Sept. Oct.- Dec. Jan.- Mar Apr.- June PHASES OF BUSINESS CYCLE
Demand, output, employment and income are at a high level. They tend to raise prices. The increase of profit and the prospect of its continuance commonly cause a rapid rise in stock market values.
PEAK The peak may lead the economy to over full employment and to inflationary rise in prices. Symptom of the end of the prosperity phase and the beginning of the recession. The seeds of recession are contained in the boom in the form of strains in the economic structure which act as brakes to the expansionary path.
RECESSION Recession starts when there is a downward descends from the ‘peak’ which is of a short duration. It marks the turning period during which the forces that make for contraction finally win over the forces of expansion. Its outward signs are liquidation in the stock market, strain in the banking system.
TROUGH Recession leads to depression when there is a general decline in economic activity. There is considerable reduction in the production of goods and services, employment, income, demand and prices. The general decline in economic activity leads to a fall in bank deposits.
THEORIES OF BUSINESS CYCLE Endogenous theories Monetary theory Over-investment theory Under-consumption theory Psychological theory
THEORIES OF BUSINESS CYCLE Exogenous theories Sunspot theory War theory