Business cycle


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The business cycle occurs when economic activity speeds up or slows down.
It will helps you to know about the business cycle.

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  • Business cycle

    1. 1. Presented by:Surabhi ParasharPrateek JainPGDM-BM
    2. 2. Three Types of Business CycleBusiness Cycle PhasesBusiness Cycles as shifts in AD and ASBusiness Cycle Methods
    3. 3.  The business cycle occurs when economic activity speeds up or slows down. A business cycle is a swing in total national output, income and employment, usually lasting for a period of 2 to 10 years, marked by widespread expansion or contraction in many sectors of the economy.
    4. 4. Q Business cycles are the irregular expansions and Potential output contractions in economic activity. Actual output t (in years)
    5. 5.  Economic theory define three types of business cycle:  Short-term (Kitchin) cycle: from 2 to 4 years, it results from the changes in business inventories.  Medium-term (Jouglar) cycle: from 7 to 11 years, it refers to new business investment.  Long-term (Kondratiev) cycle: from 30 to 50 years, it results from the technological innovation.
    6. 6.  A business cycle can be divided into four major phases:  Recession – the downturn of a business cycle. This is a period in which real GDP declines for at least 2 consecutive quarter-years.  Trough – the lowest point of real GDP at the end of a recession.
    7. 7.  Expansion (boom) is a period in which output increases and approaches potential GDP or perhaps even overshoots it. Peak – the point at which recession begins, the highest point in real GDP before a recession.
    8. 8.  Business cycle generally occurs as a result of shifts in the AD. Decline in the AD lowers output and as a result of downward shift in the AD curve, the gap between actual and potential GDP becomes greater during a recession.
    9. 9. P AS Characteristics of the recession: QP •Consumers purchases decline and businesses react by holding back AD production. Real GDP falls. AD1 Businesses investment also falls. •The demand for labor falls. •The prices of many commodities fall. E Wages are less likely to decline, butP they tend rise less rapidly.P1 E1 •Business profit fall, because the demand for credit falls, interest rates 0 Q1 Q generally also falls.
    10. 10. P AS QP AD1 The case of a boom is, naturally, just the opposite AD of recession.P1 E1 EP 0 Q Q1 Q
    11. 11. P AS1 AS QP AD E1P1P E 0 Q1 Q Q
    12. 12.  Public distribution system: distribution of essential commodities to a large number of people Fair price shops: Essential commodities are being distributed as per the eligibility and rates fixed by the Government rationing: controlled distribution of scarce resources control of black marketing Hoarding: Govt. controls the flow of money.
    13. 13.  public revenue: In order to perform duties and functions government require large amount of resources, which are via Tax revenue and Non-tax revenue public expenditure: The expenditure incurred by public authorities like central, state and local governments to satisfy the collective social wants of the people Public borrowing Financial administration