The document discusses business cycles, which are periodic fluctuations in economic activity measured by variables like GDP and employment. Each business cycle has four phases - expansion, peak, contraction, and trough. Causes of business cycles include both external factors like wars, scientific developments, and weather as well as internal factors like over-investment, under-consumption, credit expansion, and psychological factors like changing optimism and pessimism. Measures to control business cycles include fiscal and monetary policy, economic reforms, international cooperation, planning, and creating investment-friendly environments.

1. BUSINESS
CYCLE
Presented by- Shashi Pratap Singh

2. MEANING OF BUSINESS CYCLE
A business cycle is the periodic up and down
movements in the economy, which are measured by
fluctuations in real GDP and other macroeconomic
variables.
These macroeconomic variables include consumption,
investment, employment, output, etc.

3. CHARACTERISTICS OF BUSINESS
CYCLES
Occur periodically_ though they don’t show same regularity but still they
have some distinct phases .
Synchronic.ie., don’t cause changes in single industry but occur
simultaneously in all industries or sectors of the economy.
Fluctuations not only occur in level of production but also in other
variables such as employment, investment, consumption, rate of interest
and price level.
Consumption of non-durable goods and services does not vary much
during different phase of business cycles.
Consumption of durable goods can be deferred so it fluctuates greatly
during the course of business cycles.
International in character.ie., once started in one country they spread to
other countries through trade relations between them.

4. STAGES OF BUSINESS CYCLE
Each business
cycle has four
phases.
Expansion
(boom or
prosperity)
Peak (upper
turning
point)
Contraction
(Recession or
Depression)
Trough
(lower
turning
point)

6. CONTRACTION
In the Contraction phase, GDP growth rates usually slow to the 1%-2%
level and then turn negative.
Mass layoffs will make headline news. The unemployment rate will
slowly start to rise.
Economic growth weakens and becomes a recession.
Stocks enter a bear market.

7. TROUGH
The economy hits bottom. In the Trough phase, GDP growth may still
be negative, but it's not as bad.
It's clear that the economy is turning a corner. But the unemployment
rate usually worsens. That's because it's a lagging indicator.
Businesses will wait to hire new workers until they are sure the
recession is over.

8. EXPANSION
The economy starts growing again. It's signaled by a bull market.
In the Expansion phase, GDP growth turns positive again. Most of the time,
it's in the healthy 2-3% range.
The end of the expansion phase occurs when the GDP growth rate is above
3% or 4% for more than a quarter. The natural rate of
unemployment (around 4%) is reached.
A well-managed economy can remain in the Expansion phase for years.
That's called a Goldilocks economy. Towards the end of this cycle, the
economy overheats. Inflation rises. Investors are in a state of "irrational
exuberance." They create asset bubbles.

9. PEAK
The last month and quarter of growth before the recession starts. You
usually don't know you are in a peak until it is too late.
In the Peak phase, the economy is growing at full capacity, near 3% to
4%.
It's usually been growing at 4% or higher for two or more quarters in
a row.

10. CAUSES OF BUSINESS CYCLE
•Population Explosion
•Natural Factors
•Supply shocks
•Technological changes
•Economic Disturbances
•Economic Policies of Govt.
•Political Climate
•Supply of money
External
Factors
•Future Expectations
•Reduction in Credit
•Over-Saving or Under-Consumption
•Over-Investment
•Psychological Causes
Internal
Factors

11. EXTERNAL FACTORS
War:- During war days all the available resources are utilized for the
production of weapons which greatly affect the product of both capital
and consumer goods.
Postwar Period:- In the postwar period the level of consumption and
investment goes upwards. Both the government and individuals involves
in the contracture (houses, roads, bridges etc.) due to this economic
activities, output, income, and employment goes up.
Scientific Development:- Every day new products comes to the markets
like mobile, laptop, etc. These products require a huge amount of
investment through which new technology of production can be
adopted. All this increases, employment and profit and plays an

12. Surplus, Exports and Foreign Aid:- Surplus, exports, and foreign aid
raises the level of consumption and investment spending which helps
in increasing output, income, and employment level.
Weather:- It is one of the causes of business cycle. It is an important
factor which causes economic activities. If any year weather is good
the output of agricultural sector will goes upwards.
Population Growth Rate:- It is one of the factor of business cycle. If
the population growth rate is higher than the economic consumption,
expenditure and saving will be low.

13. INTERNAL FACTORS
Bank Credit :- According to Hawtery, cyclical fluctuation are caused by
expansion and contraction of bank credit. These in turn leads to
changes in the demand for money on the part of producers & traders.
Over-Saving or Under-Consumption:- According to economists like
Hobson, Foster and Douglas, business cycles are caused by over saving
or under consumption.
They argue that wide disparities of income and wealth leads to
depression in the country. The rich people are not able to spend their
entire income. So they save more and invest more in producing
consumer goods.
On the other hand, the poor people have low income or wages. As a
result, their demand for consumer goods is low which means that there

14. Over-Investment:- According to Hayke, it is bank loan which leads to
over investment in capital goods industries relative to consumer goods
industries that ultimately brings depression in the economy.
• When the total money supply exceeds the amount of voluntary saving,
it leads to increase in the investment activity and ultimately to a boom.
Psychological Causes:- According to Pigou, the alternating waves of “over
optimism” and “over pessimism” are the sole causes of the industrial
fluctuation.
• He traces cyclical fluctuation to the tendency of business to react
excessively to the changing conditions of the economy.

15. MEASURES TO CONTROL
BUSINESS CYCLE
1.Fiscal Policy
2.Monetary Policy
3.Economic Reforms
4.International Measures
5.Planning
6.Investment Friendly Environments