PeakRecessionDepressionTroughRecoveryBoomPhases of BusinessCycle
Scheme of Presentation Introduction Different Phases of Business Cycleo Expansion• Recovery• Boom• Peako Contraction• Recession• Depression• Trough Factors That Shape Business Cycle
IntroductionDefinition:- The business cycle is the periodicbut irregular up-and-down movement ineconomic activity, measured by fluctuations inreal gross domestic product (GDP) and othermacroeconomic variables. How do we measure “up-and-downmovement in business activity ?”Percent change in real GDP
Different Phases of BusinessCycle Expansion :-increased consumerconfidence, which translates into higherlevels of business activity.It consists of three small stages :1.Recovery2.Boom3.Peak
1.Recovery The turning point from depression toexpansion is termed as Recovery orRevival Phase. Consumer’s confidence starts toincrease. Rise in economic activities.
2.Boom Consumer’s confidence starts to increase at afaster pace. Unemployment levels fall. Business starts increase their constructionlevels. Rise in National Income. Rapid increase in economy. Inflation increase at very high rates.
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. GDP begins to decline(bust).
• Contraction It is a period of decrease in consumerconfidence and economic activity. It consists of three smaller stages:• Recession• Depression• Trough
1.Recession is a period of reduced economicactivity in which levels of buying,selling, production, and employmenttypically diminish. Consumer’s confidence starts todecrease a little. Unemployment is increasing whileinflation is dropping.
2.Depression Depression is the most fearfulstage of a trade cycle. The phase of depression (alsocalled slump) is characterized bylow economic activities. Rapid decline in general outputand employment.
3.Trough Contraction reaches a minimum, or Economy hits bottom. Output starts to standstill and level off. Consumer’s confidence starts to leveloff. End of recession, growth resumes.
Factors that shape businesscycle Volatility of investment spending Momentum Technological Innovations