AN ANALYSIS OF SOUTH AFRICA'S NATIONAL INCOME

5.1. CYCLICAL BEHAVIOUR

(N.B. Possible essay topic)
GDP2006 GDP2005 X 100 = Economic Growth Rate as a %
GDP2005
A business cycle is a time series depiction of increasing and decreasing economic
activity
As measured by changes in GDP growth

Segment AB

Start of the upswing phase i.e. general increase in: economic activity.
Also known as the prosperity phase.
Greater optimism in the business sector.
Encourages entrepreneurs to borrow money and to buy machinery and
equipment.
Weak Rand promotes Xs which is an J into the flow creates jobs and speeds
recovery
Weak Rand also reduces M and thus few L from flow
Beginning of the boom or peak period.
So, LOW interest rates cause: Weak Rand, high I, High C of local goods

Segment BC
Ending of boom or peak phase.
Start of downswing phase i.e. general decrease in economic activity.
High prices during the boom caused inflation
Government reacts by raising interest rates
People find it difficult to keep up repayments on credit and mortgages.
Businesses and households begin to provide for bad times by producing and
buying less.
Repay larger part of their loans.
Rand strengthens because of high interest rates
X decrease and M increases so leakages occur
Start of recession phase.
Segment CD
Further deepening of downswing phase.
Also known as the depression phase.
Spending of all sectors in economy decreases drastically.
Consists mainly of expenditure on consumer goods.
Lead to decline in profits (owing to inflation and overproduction).
Decline in production and increase in unemployment.

At the trough, the economy is at its worst.

Households and businesses begin to realise that a recovery phase must set in.
Start to produce and buy increasingly more.
Triggering of the recovery phase.

Segment DE
Also known as the recovery phase.
Starts with sales rising because of increased demand.
The result is an increase in production followed by an increase in employment.
When there is an increase in income and profits, prices will begin to rise.
Leads to inflation.
When the peak of the business cycle is reached, inflation can become endemic.
Interest rates are high and expenditure is great.