Downloaded 273 times
Uploaded byMarvin Morales
Business cycles
The business cycle refers to recurring periods of economic growth (expansion or prosperity phase) and contraction (recession phase) that occur over several years. There are four phases in the business cycle: peak, recession, trough, and recovery. During the peak phase, economic growth and activity are at their highest levels. The recession phase is a period of declining economic activity and rising unemployment. The trough marks the lowest point after which a recovery or expansion phase begins with renewed economic growth. Economists use indicators like unemployment claims and new orders to track and predict where the economy is in the business cycle.
More Related Content
Business cycles
- 1. BUSINESS CYCLES Farala, MaryAnn Camille Forbes, Camella Joy N. Galanto, Lhenny Ann S. Gueriva, Myrene Mae A. III-ACSAD
- 2. Business Cycle The term business cycle refers to the recurrent ups and downs in the level of economic activity, which extend over several years.
- 3. Four PHASES OFBUSINESS CYCLE PEAK RECESSION TROUGH RECOVERY Level of business activity Time
- 4. Level of businessactivity PEAK Time Peak or Prosperity Phase Highest period of economic growth Real output in the economy is at a high level Unemployment is low Domestic output may be at its capacity Inflation may be high
- 5. Level of businessactivity RECESSION Time Recession or Contraction Phase Economic slowdown Real output is decreasing Unemployment rate is rising As contraction continues, inflation pressure fades If the recession is prolonged, price may decline (deflation) There is no precise decline in output at which a serious recession becomes a depression
- 6. TROUGH Level of businessactivity Time Trough or Depression Phase Prolonged recession Lowest point of real GDP Output and unemployment “bottom out” There is no precise decline in output at which a serious recession becomes a depression
- 7. Level of businessactivity RECOVERY Time Expansionary or Recovery Phase Renewed economic growth Real output in the economy is increasing Unemployment rate is declining The upswing part of the cycle
- 8. per year Real GDP Peak Peak Trough One cycle Time
- 9. Indicators • Economists usechanges in a variety of activities measure the business cycle, and to try to predict where the economy is headed. • They include: – Leading indicators – Lagging indicators
- 10. LEADING INDICATORS • Variablesthat change before real output changes. They include: Unemployment claims Manufacturers’ new orders Lagging INDICATORS • Variables that change after real output changes. They include: Inventories to sales ratio Outstanding commercial loans
- 11. characteristics Wave like fluctuation Theperiods of boom and depression occur alternatively. It is recurring in nature The four phases of trade cycle repeat themselves with some sort of regularity. No two trade cycles are identical The cause, impact and periodicity of two trade cycles may not be same. Steep wall towards depression The upward movement towards boom is slow and steady. But the downfall is steep, sudden and often violent causing disaster all round. Synchronic in nature Different phases of trade cycle occur almost simultaneously in different industry.
- 12. characteristics Expansion • phase of high growth coupled with large investments, • increase in employment, income and expenditure, • but that is not all about it. Expansion also comes along with inflation and competition. Recession • Recession is unwarranted and creates negative implications for the economy. • the basic problems - unemployment, excessive inventory, below capacity operations and liquidation of firms.
- 13. Controlling business cycle During expansion firms gain, so desired phase & during recession firms suffer, the unwarranted phase Take preventive & corrective measures to minimize their losses during recession and to bring in stability in the economy At Firm Level Investment – balanced mix of debt & equity Inventory – should not create large inventory, just-in-time strategy is helpful Products – diversify in different markets & different products, because in this way risk is also diversified Pricing – flexibility preferred. During recession prices may be adjusted to increase demand At Government level Monetary policy Fiscal policy