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Business Cycle
- 1. A businesscycle refers to periods of expansion and contraction. A peak is the high point following a period of economic expansion. A trough is the low point following a period of economic decline. What is a business cycle
- 2. The recurring andfluctuating levels of economic activity that an economy experiences over a long period of time.
- 4. Expansion: Increase inproduction and prices, low interests rates. Crisis: Stock exchanges crash and multiple bankruptcies of firms occur. Recession: Drops interests rates. in prices and in output high Recovery/Revival: Stocks recover because of the fall in prices and incomes. PHASE OF BUSINESS CYCLE
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- 6. In recent yearseconomic theory has moved towards the study of economic fluctuation rather than a business cycle.
- 8. PRICE LEVEL FALL PRODUCTION DECREASES UNEMPLOYMENT INCREASES PURCHASINGPOWER DECREASES DEMAND FALLS PRODUCTIVE ACTIVITY SLOWS DOWN PRODUCTION FALLS STOCKS ACCUMULATE
- 9. DURING DEPRESSION ONLY CONSUMERGOODS ARE PURCHASED DURABLE GOODS REMAIN UNSOLD OLD DURABLE GOODS EITHER GET CONSUMED OR BECOME OBSOLETE PURCHASE OF GOODS AGAIN BECOMES NECESSARY PRODUCERS PURCHASE THESE GOODS PRODUCTION IS ENCOURAGED INCREASE IN EMPLOYMENT INCREASE IN DEMAND FOR CONSUMER GOODS GREATE R PRODUCTION OFCAPITAL GOODS ENCOURAGEMENT TO PRODUCE CONSUMER AS WELL PRODUCTIVE GOODS PROGRESS IN BOTH INDUSTRIES FULL EMPLOYMENT
- 10. EMPLOYMENT INCREASE WAGES RISE DEMAND INCREASES PRICESRISE PROFITS RISE MORE THAN WAGES LEVEL OF INVESTMENT INCREASES AS A RESULT THE LEVEL OF EMPLOYMENT, INCOMES AND TRADE ALSO RISE THERE IS OVERALL PROSPERITY
- 11. INCREASED DEMAND DURING BOOM BRINGSIN LESS EFFICIENT MEANS OF PRODUCTION MONEY MARKET ALSO BECOMES COSTLIER DEMAND FOR LOANS PUSHES UP INTREST RATES QUANTITY OF INVESTMENT BEGINS TO DECREASE COST OF PRODUCTION GOES UP PRICES OF COMMODITIES RISE SHARPLY BEGINNING OF DEPRESSION
- 12. What causes recession Decreasein spending by consumers due to lack of faith in the economy Less consumption would mean decline in demand for products Which leads the manufacturers to cut down on production Lower production would lead to job cuts Which leads to high levels of unemployment Which perpetuates the cycle due to limited spending
- 13. The businesscycle is the periodic but irregular up- and-down movements in economic activity, measured by fluctuations in Real GDP and other macroeconomic variables.
- 14. CAUSES OF BUSINESS CYCLES •Internal Factors: 1. Consumption: When consumer spending increases, businesses will increase production- causing them to hire more workers and purchase more materials and capital goods. When consumer spending decreases, the opposite will occur. 2. Business investment: The purchasing of capital goods increases the number of jobs in the economy because people have to make those goods. If investments increases, the economy will grow, if investment decreases, the economy will contract. 3. Government activity: The government can influence the business cycle through fiscal policy (its tax and spend policies) and monetary policy (its control of the money supply, largely through the federal reserve).
- 15. CONTI… • External factors 1.Inventionsand innovation: Major changes in technology can influence the business cycle. Usually technological changes move the economy in a positive direction, but this is not always so. 2.Wars and political events: The impact of such events on the economy are very fact specific- in other words, difficult to generalize about.
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- 17. INTRODUCTION Inflation isdefined as a sustained increase in the price level or a fall in the value of money. When the level of currency of a country exceeds the level of production, inflation occurs. Value of money depreciates with the occurrence of inflation.
- 18. DEFINITION According toC.CROWTHER, “Inflation is State in which the Value of Money is Falling and the Prices are rising.” In Economics, the Word inflation Refers to General rise in Prices Measured against a Standard Level of Purchasing Power.
- 19. CAUSES OF INFLATION FACTORSON DEMAND SIDE: oIncrease in money supply. oIncrease in disposable income. oDeficit financing. oForeign exchange reserves.
- 20. CONTD…… FACTORS ON SUPPLYSIDE oRise in administered prices. oErratic agriculture growth. oAgricultural price policy. oInadequate industrial growth.
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- 22. EFFECT OF INFLATION • Theyadd inefficiencies in the market, and make it difficult for companies to budget or plan long-term. • Uncertainty about the future purchasing power of money discourages investment and saving.
- 23. • There canalso be negative impacts to trade from an increased instability in currency exchange prices caused by unpredictable inflation. • Higher income tax rates. • Inflation rate in the economy is higher than rates in other countries; this will increase imports and reduce exports, leading to a deficit in the balance of trade.
- 24. HOW IS INFLATION MEASURED? The2 ways of Measuring Inflation are -: Consumer Price Index
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- 26. CONSEQUENCES OF INFLATION Adverse effecton production Adverse effect on distribution of income Obstacle to development Changes in relative prices Adverse effect on the B.O.P
- 27. MEASURES OF INFLATION 1.Monetary policy • Credit Control • Demonetization of Currency • Issue of New Currency 2. Fiscal policy • Reduction in Unnecessary Expenditure • Increase in Taxes • Increase in Savings • Surplus Budgets • Public Debt 3. Other Measures • To Increase Production • Rational Wage Policy • Price Control