Académique Documents
Professionnel Documents
Culture Documents
Sunil Kumar
Introduction
Sunil Kumar
History shows that the economic do not grow in an uniform pattern. There may be several years of economic growth followed by a recession and in some cases even a prolonged depression. In course of time, the economy recovers and if the recovery is very strong it may lead to a boom. Prosperity may also lead to inflationary conditions marked by rising prices and speculation. An analysis of business cycles helps us to understand the relationship between real GDP, unemployment and inflation.
A business cycle may be defined as a swing in total national output, income ad employment. It usually lasts for two to ten years and is characterized by expansion and contraction in many sectors. A business cycle has mainly two phases: recession and expansion. Peaks and troughs are the turning points of the cycles.
3
Sunil Kumar
Contraction or depression
Recessionary through
Time Period
Sunil Kumar 4
Above Normal
Recession
B C
Depression
Below Normal
Recovery
Time Period
Sunil Kumar 5
Sunil Kumar
According to multiplier theory, income is determined by investment. For a given level of aggregate output to be maintained, investment activity must be maintained at a certain level. The accelerator hypothesizes that current investment depends on the change in aggregate output from the previous year to the current year. To generate business cycles, two more ingredients are necessary : ceiling and floor
7
Sunil Kumar
Business cycles can be understood better with the help of aggregate demand and aggregate supply
B
C Potential Output
Q1 Q Real Output
Sunil Kumar 8
Other Theories
Fiscal and monetary policies, which seek to combat cyclical movements arte called stabilization polices. They try to counteract reduction in private expenditure either by increasing public expenditure or by stimulating private expenditures through tax cuts, lower interests rates etc.
9
Sunil Kumar
Until the World War II, economic fluctuation were forecasted mainly with the help of data on money supply, consumption expenditure, savings, production in heavy industries etc. With the availability of statistical tools and computers, forecasting made great progress. Jan Tinbergen and Lawrence Klein, both Nobel laureates in economics did pioneering work in the field of econometric forecasting. An econometric model is a set of equations that uses historical data to study the behavior of the economy.
10
Sunil Kumar
Employment Fluctuations
The rate of unemployment is one of the key indicators of the economic conditions prevailing in an economy. Fluctuations in the rate of unemployment lead to partial changes in the economy. Unemployment arise form a deficiency in effective demand. Economists divide unemployment into three categories
Frictional Unemployment: due to changes in labor market Structural Unemployment Cyclical Unemployment
Sunil Kumar
11
Full employment is widely used term in economics. Full employment does not mean zero unemployment. Economist define full employment as the level of employment that results when the rate of unemployment is normal. There is some natural rate of unemployment.
12
Sunil Kumar
Year
Sunil Kumar 13
The nature of unemployment in India is mostly structural and disguised. It is associated with the inadequacy of productive capacity to create adequate jobs for those people who are able and willing to work. In India, not only is production much below acceptable levels, but it is also increasing at a very low rate. Because of rapid growth of the population, the number of people unemployed is increasing.
14
Sunil Kumar