2. INTRODUCTION
Definition:- The business cycle is the
periodic but irregular up-and-down
movement in economic activity, measured by
fluctuations in real gross domestic product
(GDP) and other macroeconomic variables.
They don’t have any fixed rhythm , but they
are the cycles in the phases of contraction
and expansion that recur frequently and in
fairly similar pattern.
3. FEATURES OF BUSINESS CYCLES
Wave like movement :
Wavelike movement of business cycles ,
featured by phases of expansion( prosperity )
and contraction (depression )
Repetitive fluctuations:
they are repetitive and rhythmic in nature ,
period of prosperity is followed by period of
depression which is again followed by a
period of prosperity
4. Alternating forces:
forces of prosperity , depression and growth
are in built in the system , each forces will
itself create a space for the next force to
occur
Lack of symmetry :
peak , depression etc are not symmetrical
in nature , the expansion phase is slow and
gradual where as the period of contraction is
sudden and violent
5. Economy wide phenomenon :
It may start from industrial sector, but it will
gradually move to other sectors of the
economy.
Self reinforcing :
Once the cycles are start on itself, it tends to
feed on itself.
No fixed time interval :
Business cycles are differ in time , it may last for
2 to 4 years , other can last for 8 to 10 years or
even more.
6. DIFFERENT PHASES OF BUSINESS CYCLE
Expansion :-increased consumer
confidence, which translates into higher
levels of business activity.
It consists of three small stages :
1.Recovery
2.Boom
3.Peak
8. 1.Recovery
The turning point from depression to
expansion is termed as Recovery or Revival
Phase.
Consumer’s confidence starts to increase.
Rise in economic activities.
Higher level of output and trade.
Higher level of effective demand.
Larger expansion of bank credit.
Heavy investment on capital goods.
9. 2.Boom
Consumer’s confidence starts to increase at
a faster pace.
Unemployment levels fall.
Business starts increase their construction
levels.
Rise in National Income.
Rapid increase in economy.
Inflation increase at very high rates.
10. 3.Peak
The economy has reached its peak.
Output starts to standstill and level off.
Consumer’s confidence starts to decline.
People start to stop their buying.
Number of jobs exceed the no of workers in
the market , over full employment
Boom in itself carries the seed of self
destruction in it , bottle necks began to
emerge in the economy
11. Contraction
It is a period of decrease in consumer
confidence and economic activity.
It consists of three smaller stages:
Recession
Depression
Trough
12.
13. 1.Recession
Recession is a period of reduced economic
activity in which levels of buying, selling,
production, and employment typically
diminish.
Consumer’s confidence starts to decrease a
little.
Unemployment is increasing while inflation
is dropping.
Failure of some business create panic in
market .
14. 2.Depression
Depression is the most fearful stage of a trade
cycle.
The phase of depression (also called slump) is
characterized by low economic activities.
Rapid decline in general output and
employment.
General price level falls.
Level of unemployment rises.
Most of the firms are incurring losses.
Interest , wages and rent are all falling.
Bank credits contracts.
15. 3.Trough
Contraction reaches a minimum, or Economy
hits bottom.
Output starts to standstill and level off.
Consumer’s confidence starts to level off.
End of recession, growth resumes.
16. CAUSES OF BUSINESS CYCLES
Expansion and contraction of loans by
banks :
A change in the bank credit will create
business cycles, when banks expand credit it
will result in inflation or boom in the economy
, vice versa will result in downfall of the
economy.
17. Change in the volume of investments :
Fluctuations in the volume of trade cycles
effect the capital invested and there by the
pattern of economy movement .
Seasonal fluctuations :
Seasonal fluctuations affect agricultural
sector and hence entire economy.
18. Under consumption or excessive savings:
Basic cause of business cycles is under
consumption or excessive savings by
household sector.
Excessive savings result in higher
investments resulting in prosperity in
economy.
19. Lack of adjustments between demand and
supply :
If demand is more than supply , it will cause
inflation.
If supply is more than demand it will cause
depression.
20. Feelings of entrepreneur:
Optimism will cause prosperity in the
economy where as,
Pessimism will create depression in the
economy.
Other factors :
Rate of growth of population , revolutions,
discoveries of new resources etc.
21. MEASURES TO CONTROL BUSINESS CYCLES
Fiscal policy measures.
Monetary policy measures.
Non fiscal and non monetary measures.
22. REFERENCES
Dwivedi, D N(2015), Managerial Economics (8th ed),India: vikas
publishing house pvt. Ltd.
Mithani, D M (2013), Managerial Economics:Theory & Application(7th
ed.), India: Himalaya Publishing House
Thomas, Christopher R and Maurice, s Charles (2008), Managerial
Economics :concepts & Application (7th ed.), India: Mc Graw hill Irwin
Kumar Raj and Gupta Kuldip(2005), Managerial Economics, India:UDH
publishers & Distributors
Ahuja, H L (2017), Managerial Economics:Analysis of Managerial
Decision Making(9th ed.), India: S chand Company Ltd.
Geetika(2017), Managerial Economics(3rd ed.), India: Tata Mc Graw Hill
Education Pvt Ltd.
http://www.economicsdiscussion.net/business-cycles/business-cycles-
meaning-phases-and-features/10413
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