The document discusses the business cycle, which encompasses the fluctuations in national output, income, and employment that typically last between 2 to 10 years. It defines three types of business cycles: short-term, medium-term, and long-term, and outlines the four major phases of the business cycle: recession, trough, expansion, and peak. Additionally, it touches on government roles in the economy through public distribution systems, taxation, and expenditure.

1. Presented by:
Surabhi Parashar
Prateek Jain
PGDM-BM

2. Three Types of Business Cycle
Business Cycle Phases
Business Cycles as shifts in AD and AS
Business Cycle Methods

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. Q Business cycles are the
irregular expansions and
Potential output contractions in economic
activity.
Actual output
t (in years)

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.  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.  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.  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. 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, but
P
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. P AS
QP
AD1 The case of a boom is,
naturally, just the opposite
AD
of recession.
P1 E1
E
P
0 Q Q1 Q

11. P AS1 AS
QP
AD
E1
P1
P
E
0 Q1 Q Q

13.  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.

14.  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