BUSINESS CYCLE

BY:
RAJIV MENON(23)
YASH SHAH(45)
AKHILESH MANIKERI(24)
ASHISH GAIKWAD(11)
NIRAJ DOSHI(9)
PUNIT CHAWLA(4)
What is a business cycle?
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.
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According to Arthur F. Burns and Wesley
C. Mitchell..
Business cycles are a type of fluctuation found in the
aggregate economic activity of nations that organize their
work mainly in business enterprises.

 A cycle consists of:

Expansions.
General recessions.
Contractions
And revivals which merge into the expansion
phase of the next cycle. 2
Business Cycle…

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Theories of Business Cycle…

• Keynesian Theory
 Proposed by John Maynard Keynes, one of the foremost
contemporary English economist.
He challenges the generally accepted view that the way 2 end
depression is to cut expenses, especially wages ,and by doing so
encourage full employment and revival.
In making his decision on this point he considers three valuable
factors:
1)The propensity to consume.
2)The prospective return of new capital investment.
3)Rate of interest.
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Theories of Business Cycle…

Class of theories explored first by John

Muth(1961)
Real business cycle theory (RBC theory)
are a class of macroeconomic models in
which business cycle fluctuations to a large
extent can be accounted for by real (in
contrast to nominal) shocks.
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Theories of Business Cycle…

Politically based business cycle…

DEFINITION:
Concept that politicians manipulate an
economy (usually by increasing or
decreasing money supply) to achieve
personal ends, specially during an election
period
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How we measure Business Cycle?

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.

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Stages of Business Cycle…
Expansion: A speedup in the pace of economic activity.

Peak: The upper turning of a business cycle.

Contraction : A slowdown in the pace of economic

activity.

Trough : The lower turning point of a business cycle,

where a contraction turns into an expansion.

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Stages of Business Cycle…
Expansion
Production up
Employment up

 Peak
Production highest
Employment highest
Inflationary pressure

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Stages of Business Cycle…
Contraction
Production down
Employment down
Recession
Trough
Production lowest
Employment lowest
 Revival
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Parts of Business Cycle- PEAK
Low levels of unemployment – shortages of
labour occur pushing up wage rates
High levels of consumer borrowing and
spending
Firms working at full capacity
Profit levels high
Inflation Increasing
Interest rates increasing
Boom in housing market
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Parts of Business Cycle- RECESSION
Recession is a general slowdown in economic activity
over a long period of time, or a business
cycle contraction.
Production as measured by Gross Domestic Product
(GDP), employment, investment spending, capacity
utilization household incomes, business profits and
inflational fall during recessions.
Bankruptcies and the unemployment rate rises.

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Recession- Impact on INDIA

Exports had declined by around 12 per cent

in November 2008.
double-digit decline owing to lack of
demand from most of the buying markets
Indian industry shrunk for the first time in
15 years with a 0.4 per cent year-on-year
decline in October 2008.
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How to tackle the Recession
Government Measures…
The government attempt to control
fluctuations in economic growth
The Government use Fiscal and Monetary
policy to achieve this objective.

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Fiscal Policy…
It is represented by the executive and
legislative branches of government and
captures changes in taxes (T) and
government spending (G).
If the economy is in a recession, a
combination of tax cuts and increases in
government spending can stimulate
economic activity.

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Monetary Policy…
It is conducted by the central bank of a
country.
Embraces banking and credit policy relating
to loans and interest rates
In a depression a policy of cheap money
may be adopted to stimulate business
investment and thus assist recovery.

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RBI's Monetary Policy…
The repo had been brought down to 6.5 per
cent effective November 3, 2008 and
The CRR reduced to 5.5 per cent effective
November 8, 2008.
 There is no doubt these measures have
helped the economy and thereby the
demand for goods and services.

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Parts of Business Cycle: Revival
Consumer confidence grows – leading to
increased borrowing and spending
Firms increase output – build up stock levels
Spare capacity used, then
Investment occurs
Unemployment falls – it may take more than a
year of recovery for large changes in
unemployment.
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Current Condition On World's Economy

According to Market Watch US economy is

slowly recovering.
Current unemployment rate in US is 7%
Current unemployment rate in India is 7%
Current world economic growth is 2.9%
Indian economy surges 7.9 % in Sept 2009.

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