The business cycle refers to periodic fluctuations in economic activity, involving periods of expansion and contraction. A peak marks the end of an expansion period, while a trough marks the end of a contraction period. Business cycles are caused by internal factors like consumption, investment, and government activity, as well as external factors like innovations, wars, and political events. Governments try to control business cycles through monetary and fiscal policies that influence aggregate demand and output.

1.  A business cycle 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 and fluctuating levels of economic
activity that an economy experiences over a long period
of time.

4. Expansion: Increase in production 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

5. THE BUSINESS CYCLE
GDP
TIME
Peak
Recession
Depression
Growth

6. In recent years economic theory has moved towards
the study of economic fluctuation rather than a business
cycle.

8. PRICE LEVEL FALL
PRODUCTION
DECREASES
UNEMPLOYMENT
INCREASES
PURCHASING POWER
DECREASES
DEMAND FALLS
PRODUCTIVE
ACTIVITY SLOWS
DOWN
PRODUCTION
FALLS
STOCKS
ACCUMULATE

9. DURING DEPRESSION
ONLY CONSUMER GOODS 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
PRICES RISE 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
BRINGS IN 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
Decrease in 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 business cycle 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.Inventions and 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.

16. HOW TO CONTROL
BUSINESS CYCLE

17. INTRODUCTION
 Inflation is defined 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 to C.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
FACTORS ON DEMAND SIDE:
oIncrease in money supply.
oIncrease in disposable income.
oDeficit financing.
oForeign exchange reserves.

20. CONTD……
FACTORS ON SUPPLY SIDE
oRise in administered prices.
oErratic agriculture growth.
oAgricultural price policy.
oInadequate industrial growth.

21. EFFECT OF
INFLATION

22. EFFECT OF
INFLATION
• They add 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 can also 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?
The 2 ways of Measuring Inflation
are -: Consumer Price Index

25. INFLATION IN
INDIA

26. CONSEQUENCES OF
INFLATION
Adverse effect on 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