KUZNETS U-SHAPE An economic cycle, also known as a business cycle, refers to

CURVED economic fluctuations

between periods of expansion and contraction. Factors such as

gross domestic product (GDP), interest rates, total employment,
Kuznets believed that and consumer spending can help determine the current
inequality would follow an economic cycle stage.
inverted "U" shape as it What are the differences between economic growth and business
rises and then falls again cycle?
with the increase of income Economic growth can be caused by random fluctuations,
per-capita. Kuznets had two seasonal fluctuations, changes in the business cycle, and long-
similar explanations for this term structural causes. Policy can influence the latter two.
historical phenomenon: Business cycles refer to the regular cyclical pattern of economic
workers migrated from boom (expansions) and bust (recessions).
agriculture to industry; and. What do you mean by business cycle?
rural workers moved to Business cycles are comprised of concerted cyclical upswings
urban jobs. and downswings in the broad measures of economic activity—
What is the U-shaped output, employment, income, and sales. The alternating phases
hypothesis of Kuznets? of the business cycle are expansions and contractions (also
In the 1950s, Simon called recessions).
Kuznets hypothesized What Is a Business Cycle?
that an inverted U-shaped Business cycles are a type of fluctuation found in the aggregate
relationship exists between economic activity of a nation -- a cycle that consists of
inequality and development. expansions occurring at about the same time in many economic
As countries developed, activities, followed by similarly general contractions (recessions).
inequality would increase This sequence of changes is recurrent but not periodic.
until a certain tipping point, The business cycle is an example of an economic cycle.
after which it would start to  Business cycles are comprised of concerted cyclical upswings
fall again. and downswings in the broad measures of economic activity—
How do you explain Kuznets output, employment, income, and sales.
curve?  The alternating phases of the business cycle are expansions and
Kuznets is also known for contractions (also called recessions).
the Kuznets curve, which  Recessions often start at the peak of the business cycle—when
hypothesizes an expansion ends—and end at the trough of the business
that industrializing nations cycle, when the next expansion begins.
experience a rise and  The severity of a recession is measured by the three D’s: depth,
subsequent decline in diffusion, and duration, and the strength of an expansion by
income inequality. The rise how pronounced, pervasive, and persistent it is.
in inequality occurs after What Is the Economic Cycle?
rural labor migrates to An economic cycle, also known as a business cycle, refers to
urban areas and becomes economic fluctuations between periods of expansion and
socially mobile. contraction. Factors such as gross domestic product
BUSSINESS CYCLE AND (GDP), interest rates, total employment, and consumer
ECONOMIC CYCLE spending can help determine the current economic cycle stage.
 Understanding the economic
period can help investors
and businesses determine
when to make investments
and when to pull their
money out, as each cycle
impacts stocks and bonds
as well as profits and
corporate earnings.
 An economic cycle is the
overall state of the economy
as it goes through four
stages in a cyclical pattern:
expansion, peak,
contraction, and trough.
 Factors such as GDP,
interest rates, total
employment, and consumer
spending can help
determine the current stage
of the economic cycle.
 The causes of a cycle are
highly debated among
different schools of
economics.
Stages of the Economic
Cycle
An economic cycle is the
circular movement of an
economy as it moves from
expansion
to contraction and back
again. Economic expansion
is characterized by growth
and contraction, including
recession, a decline in
economic activity that can
last several months. Four
stages characterize the
economic cycle or business
cycle.1
Expansion
During expansion, the
economy experiences
relatively rapid
growth, interest rates tend to be low, and production increases.
The economic indicators associated with growth, such as
employment and wages, corporate profits and output, aggregate
demand, and the supply of goods and services, tend to show
sustained uptrends through the expansionary stage. The flow of
money through the economy remains healthy and the cost of
money is cheap. However, the increase in the money supply
may spur inflation during the economic growth phase.
Peak
The peak of a cycle is when growth hits its maximum rate.
Prices and economic indicators may stabilize for a short period
before reversing to the downside. Peak growth typically creates
some imbalances in the economy that need to be corrected. As
a result, businesses may start to reevaluate their budgets and
spending when they believe that the economic cycle has
reached its peak.
Contraction
A correction occurs when growth slows, employment falls, and
prices stagnate. As demand decreases, businesses may not
immediately adjust production levels, leading to oversaturated
markets with surplus supply and a downward movement in
prices. If the contraction continues, the recessionary
environment may spiral into a depression.
Trough
The trough of the cycle is reached when the economy hits a low
point, with supply and demand hitting bottom before recovery.
The low point in the cycle represents a painful moment for the
economy, with a widespread negative impact from stagnating
spending and income. The low point provides an opportunity for
individuals and businesses to reconfigure their finances in
anticipation of a recovery.
VICIOUS CYCLE OF POVERTY
Poverty. The vicious cycle of poverty, also known as generational
poverty, is understood as when at least two generations of a
family are below the poverty line. Once poverty starts, it is likely
to continue if there is no external intervention.I
The rate of investment and formation of new capital is minimal
with the low income and savings of the population. Hence, the
economy fails to raise productivity across all sectors due to low
investment and inadequate capital formation.
How do you explain the cycle of poverty?
 These families often have
limited or no resources to
create opportunities
advance themselves, which
leaves them stuck in the
poverty trap. On paper, the
cycle of poverty has been
defined as a phenomenon
where poor families become
impoverished for at least
three generations.
What are the four factors
that make up the vicious
cycle of poverty?
Family background
 Lack of jobs due
deindustrialization.
 Effects of modern education.
 Culture of poverty.
 Life shocks.
 Tracking in education.
Why is our country suffering
from poverty?
Poverty in the Philippines
has been linked to bad
governance, corruption, and
a political system dominated
by political dynasties. The
country's poorest provinces
are ruled by political
dynasties. Natural disasters
have exacerbated poverty in
the Philippines.
ADAM SMITH contribute to
economics?
The 10 major
accomplishments of Adam
Smith including his
contributions to economics.
During Smith’s time,
economics was dominated
by a system called
mercantilism, which
propagated generating
wealth through
accumulation of profitable
balances. Thus leaders saw
national wealth in terms of a
country’s stock of gold and
silver.
Adam Smith is considered
the father of classical
economic theory and the
founder of the invisible hand theory that underpins capitalist
economic systems.
to
KARL MARX was a German-born philosopher, economist,
political theorist, historian, sociologist, journalist, and
revolutionary socialist.
Several of its concepts, like those related to capital
accumulation and the business cycle, are used in capitalist
systems. The work of Karl Marx in economics influenced
subsequent economic thought and laid the basis for much of the
current understanding of labor and its relation to capital.
While the centrepiece of his life’s work was an examination of
the social relations at the heart of the capitalist mode of
production (in Capital and elsewhere), he was clear that quite
different ensembles of social relations existed in different modes
to of production.
Main contributions
Labour Theory of Value: Marx's labour theory of value posits
that the value of a commodity is determined by the amount of
socially necessary labour time required to produce it. He argued
that labour is the source of all value and that capitalists
appropriate surplus value by exploiting the labour of workers.
Historical Materialism: Marx developed the theory of historical
materialism, which proposes that the structure and
development of society are shaped primarily by the material
conditions of production. He argued that economic systems,
such as feudalism and capitalism, give rise to specific social
relations and class struggles. According to Marx, the transition
from capitalism to communism is an inevitable outcome of
historical development.
Class Struggle: Marx's analysis of class struggle forms a central
theme in his work. He argued that throughout history, societies
have been characterized by the conflict between the bourgeoisie
(owners of the means of production) and the proletariat (working
class). Marx believed that the inherent contradictions of
capitalism would lead to heightened class conflict and
ultimately result in a proletarian revolution.
Alienation: Marx's theory of alienation explores the idea that
under capitalism, workers are estranged from the products of
their labor, the process of production, their own human
essence, and from one another. He argued that alienation is a
consequence of the capitalist mode of production, which treats
labor as a mere commodity and separates workers from the
fruits of their labor.
Critique of Capitalism: Marx's analysis of capitalism was a
fundamental critique of the system. He argued that capitalism
leads to the concentration of wealth and power in the hands of a
few, exploitation of the working class, cyclical economic crises,
and alienation of individuals from their labor. Marx believed
that these inherent contradictions would ultimately lead to the
collapse of capitalism.
Concept of Communism: Marx envisioned communism as a
classless society where the means of production are collectively
owned and controlled by the working class. In this society, there
would be no private property, no exploitation, and economic
decisions would be made cashbacks. How do economic incentives relate to population
collectively for the benefit of growth?
all. Marx saw communism
as the resolution of class JOHN MAYNARD KEYNES, a prominent economist of the 20th
conflict and the realization century, made significant contributions to economic thought,
of human freedom and particularly in the field of macroeconomics. Keynesian
equality. Economics: Keynes is best known for his development of
Marx's ideas have also been Keynesian economics, which challenged classical economic
criticized by economists who theories prevalent at the time.
believe that the free market How did Keynes change the economy?
is a more efficient way to Keynes’s ideas took a dramatic change, however, as
organize the economy. unemployment in Britain dragged on during the interwar period,
Marx's contributions to reaching levels as high as 20 percent. Keynes investigated other
economic thought are still causes of Britain’s economic woes, and The General Theory of
debated today. However, Employment, Interest and Money was the result.
there is no doubt that he The basic economic problem is that people have unlimited
was one of the most wants but there are are limited resources to satisfy these wants.
influential economists of the Decisions have to be made about how best to use the resources
19th century. His work has to satisfy as many of the wants as possible.
had a profound impact on Needs are the things that are essential for people to live
the way we think about adequately.
society, economics and Wants are the luxuries that people desire to make their life
politics. more comfortable
Resources: are the inputs available for the production of good
ELTON MAYO said that the and services.
techniques of economic Scarcity: a lack of something (in this context, resources) The
incentives were not only fundamental economic problem is that there is a scarcity of
inadequate but also resources to satisfy all human wants and needs.There are finite
unrealistic. He was able to resources and unlimited wants.
show that humane and An economic good is one which is limited in supply such as
respectful treatment, sense gold, clothes, food etc. It is scarce in relation to its demand for
of participation and the product and human effort is required to obtain an economic
belonging, recognition, good
morale, human pride and A free good is unlimited in supply such as air, sunlight, sea etc.
social interaction are A free good has no opportunity cost in its consumption or
sometimes more important production.
than pure monetary The four basic economic problems confronting society are ;
rewards.  What goods and services to produce
Economic incentives,  How shall this goods and services to produce
therefore, are the financial  How much shall this goods and services to produce,
motivations for behaving in  For whom shall this goods and services to produce,
a particular manner. They
encourage people to pursue The four basic economic problems confronting society are often
their financial preferences. summarized as:
Economic incentives 1. What to produce a viable selection of commodities and
meaning can be referred to services to produce in the economy based on their potential.
as a reward or motivation 2. How to produce:. which combination of resources is to be
provided in monetary terms. used for the production of goods and which technology is to be
It produces a desired made use of in production
response from the parties by 3. For whom to produce: This pertains to the distribution of
altering their natural goods and services among individuals and groups within the
behavior. Examples of society.
incentives are subsidies, tax 4. How much to produce. After deciding the goods to be
credits, discounts, and produced, economy has to decide the quantity of each
commodity that is selected. It means, if involves a decision
regarding the quantity to be set of conditions and assumptions. Economic systems can be
produced, of consumer and categorized into four main types: traditional economies,
capital goods, civil and war command economies, mixed economies, and market economies.
goods and so on.
1. Traditional economic system
There are four main The traditional economic system is based on goods, services,
categories of economic and work, all of which follow certain established trends. It relies
systems: a lot on people, and there is very little division of labor or
1. Traditional Economy: specialization. In essence, the traditional economy is very basic
This system is based on and the most ancient of the four types.
customs, traditions, and
historical precedent, with Some parts of the world still function with a traditional
economic activities often economic system. It is commonly found in rural settings in
focused on subsistence second and third world nations, where economic activities are
agriculture and simple predominantly farming or other traditional income-generating
barter systems. activities.
2. Market Economy: In this
system, production and There are usually very few resources to share in communities
distribution are primarily with traditional economic systems. Either few resources occur
determined by supply and naturally in the region or access to them is restricted in some
demand, with minimal way. Thus, the traditional system, unlike the other three, lacks
government intervention. It the potential to generate a surplus. Nevertheless, precisely
is characterized by private because of its primitive nature, the traditional economic system
ownership and the pursuit is highly sustainable. In addition, due to its small output, there
of individual self-interest. is very little wastage compared to the other three systems.
3. Command Economy:
Also known as a planned 2. Command economic system
economy, it is characterized In a command system, there is a dominant centralized
by central authority making authority – usually the government – that controls a significant
decisions about production, portion of the economic structure. Also known as a planned
distribution, and resource system, the command economic system is common in
allocation. Private property communist societies since production decisions are the preserve
rights are limited, and the of the government.
state plays a dominant role.
4. Mixed Economy: This If an economy enjoys access to many resources, chances are
system combines elements that it may lean towards a command economic structure. In
of market and command such a case, the government comes in and exercises control
economies, with a blend of over the resources. Ideally, centralized control covers valuable
private enterprise and resources such as gold or oil. The people regulate other less
government intervention, important sectors of the economy, such as agriculture.
often seen in countries
where both market forces In theory, the command system works very well as long as the
and government planning central authority exercises control with the general population’s
coexist. best interests in mind. However, that rarely seems to be the
case. Command economies are rigid compared to other systems.
Types of Economic They react slowly to change because power is centralized. That
Systems makes them vulnerable to economic crises or emergencies, as
There are many types of they cannot quickly adjust to changing conditions.
economies around the world.
Each has its own 3. Market economic system
distinguishing Market economic systems are based on the concept of free
characteristics, although markets. In other words, there is very little government
they all share some basic interference. The government exercises little control over
features. Each economy resources, and it does not interfere with important segments of
functions based on a unique the economy. Instead, regulation comes from the people and the
relationship between supply composed primarily of public services, are under the control of
and demand. the government.

The market economic
system is mostly theoretical.
That is to say, a pure
market system doesn’t really
exist. Why? Well, all
economic systems are
subject to some kind of
interference from a central
authority. For instance,
most governments enact
laws that regulate fair trade
and monopolies.
From a theoretical point of
view, a market economy
facilitates substantial
growth. Arguably, growth is
highest under a market
economic system.
A market economy’s
greatest downside is that it
allows private entities to
amass a lot of economic
power, particularly those
who own resources of great
value. The distribution of
resources is not equitable
because those who succeed
economically control most of
them.
Mixed systems are the norm globally. Supposedly, a mixed
system combines the best features of market and command
systems. However, practically speaking, mixed economies face
the challenge of finding the right balance between free markets
and government control. Governments tend to exert much more
control than is necessary.
What countries are a traditional economy?
A traditional economy usually centers on survival. Families and
small communities often make their own food, clothing, housing
and household goods. An example of a traditional economy is
the Inuit people in the United States' Alaska, Canada, and the
Denmark territory of Greenland
What country has a command economy?
Some examples of countries that have command economies are
Cuba, North Korea and the former Soviet Union.
What country has a market economy?
Some countries with a market economy include the U.S.,
Canada, the U.K., and Denmark.
What country has a mixed economy?
Countries like the United States, United Kingdom, Germany,
France, Russia, and China currently have mixed economies.

4. Mixed system
Mixed systems combine the
characteristics of the market
and command economic
systems. For this reason,
mixed systems are also
known as dual systems.
Sometimes the term is used
to describe a market system
under strict regulatory
control.

Many countries in the

developed western
hemisphere follow a mixed
system. Most industries are
private, while the rest,