Mrktng b group5 business cycle


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Mrktng b group5 business cycle

  1. 1. Business Cycle<br />GROUP – 5<br />Ankita Bobby<br />Apurv Sharma<br />Vineetha K.<br />RaghvandraYadav<br />RohitPandey<br />Vaibhav Joshi<br />
  2. 2. Business Cycles<br />The pattern of real GDP rising and then falling is called Business Cycle. <br />The value of real GDP over time shows periodic fluctuations in its movement.<br />It is the recurrent swings in the real GDP which follows a wave like pattern.<br /> The four phases of business cycle :<br />Trough <br />Expansion<br />Peak <br />Recession <br />
  3. 3. The business cycle<br />Potential output<br />Trend output<br />3<br />4<br />Real GDP<br />Actual output<br />4<br />3<br />2<br />4<br />2<br />1<br />1 – TROUGH<br />2 – EXPANSION<br />3 – PEAK<br />4 – RECESSION<br />1<br />O<br />Time<br />
  4. 4. Features of Business Cycles<br />
  5. 5. Indicators of Business Cycles<br />There are variables other than real GDP that influence the business cycle. They are classified into three:<br />(1) Leading Indicators: generally change before real GDP changes.<br /> Can be used to forecast future output.<br />(2) Coincident Indicators: tend to change at the same time as real output changes<br />eg: as real output increases employment and sales rise<br />Ref: MB p.136<br />
  6. 6. Indicators of Business Cycles<br />(3) Lagging Indicators:do not change until after the value of real GDP has changed<br />eg: as output increases, jobs are created, more workers are hired, and as a result unemploymentfalls.<br />All these three groups of indicators are used together to identify the peaks and troughs in business cycles.<br />
  7. 7. Sources of Business cycle<br />AGGREGATE DEMAND<br />AGGREGATE SUPPLY<br /> The degree to which real GDP declines or increases depends on the amount by which AD and AS curve shifts.<br />
  8. 8. Sources of Business Cycles<br />Political<br />if politicians manipulate the economy for electoral advantage<br />For example: loose fiscal policy before elections in order to manipulate demand; tight fiscal policy after elections<br />Psychological (Speculative)<br />Changes in expectations about future profits are more important (bursting of bubbles – dot com, sub-prime crisis, etc.)<br />
  9. 9. Reasons for Shocks<br />Technological<br />Technological shocks as the main reason (innovation, oil price increase, safety regulations etc.) <br />External<br />One country’s exports are another country’s imports, therefore, the demand for imports mostly depends on the other country’s income (e.g., oil price shocks)<br />Unpredictable factors<br />Cyclical movements can also caused by highly unpredictable factors such as drought, contraction of exports, etc.<br />
  10. 10. Business and a Boom<br />A boom occurs when national output is rising at a rate faster than the trend rate of growth<br />It is characterised by HIGH consumer spending, high business confidence, investments and profits <br />There is a lot more output.<br />
  11. 11. Business cycles<br />Economic Depression: is a prolonged period of severe economic contraction/recession<br />Economic Recession: “a period of significant decline in total output, income, employment, and trade lasting from six months to a year, and marked by widespread contractions in many sectors of the economy” (NBER)<br /> “Two consecutive quarters of declining real GDP” <br />
  12. 12. Characteristics of an Economic Recession<br />Declining aggregate demand for output <br />Contracting employment / rising unemployment<br />Sharp fall in business confidence & profits <br />Falling demand for imports<br />Increased government borrowing <br />Lower interest rates from central bank<br />
  13. 13. GLOBAL RECESSION<br /> “when US sneezes , the rest of the world catches cold”<br />The United States accounts for one-fourth of the world GDP and any significant slowdown is bound to have reverberations elsewhere.<br />
  14. 14. How recession affected India<br />The sectors least affected (directly) by the slowdown are Pharmaceuticals, FMCG, Media & Entertainment.<br />  Those which will feel a moderate impact of the global crises are Power, Automobiles, Retail, Hospitality and Tourism. <br />The sectors most severely affected are Banks, Financial Services, Real Estate, Infrastructure and Information Technology.   <br />
  15. 15. In terms of specific sectors, the IT Enabled Services sector was a hit since a majority of Indian IT firms derive 75% or more of their revenues from the United States.<br />A recession in the United States has seen the loss of some jobs in India.<br />Banks have suffered huge losses including the public sectors like PNB,BANK OF INDIA etc:- as they had exposure to instruments issued by Leyman and Merill Lynch.<br />The exports to US have dropped by 30 % which will lead to an affect on indian economy.<br />
  16. 16. How recession affected India <br />FICCI (Federation of Indian Chambers of Commerce & Industry) found that with global recession, inventories industries like garments, gems, jewellery , textiles and chemicals had cut their production by 20 % to 50%<br />5 lakh people had lost their jobs in the manufacturing industries.<br />The real estate also faced problems, where the developers are finding it hard to raise finances.<br />
  17. 17. Measures to counter recession<br /> FISCAL POLICIES : Government influences the economy by changing how it spend and collects money.<br />Tax rate cuts for business or individual.<br />More spending by the government to create jobs.<br />
  18. 18. Measures to counter recession<br />MONETARY POLICIES : Central Bank manipulates the available supply of money in the country.<br />Reduce reserve ratios <br />Lower the interest rates.<br /> Open market operations<br />
  19. 19. Thank You<br />