Business Cycle

Made By :- Prashant.B
Presentation Plan
 Introduction
 History
 Features of business Cycle
 Phases of business cycle
 How do business Cycle Occur?
 Measures to control business cycles
 Business cycle theory
 Indicators of business cycle
 References
INTRODUCTION
• The term business cycle refers to economy-
wide fluctuations in production or economic
activity over several months or years.
• Business cycle can be defined as wavelike
fluctuations of business activity characterized
by recurring phases of expansion and
contraction in periods varying from 3 – 4 years.
• These fluctuations are often measured using
the growth rate of real gross domestic product
History
• There were frequent crises in Europe and
America in the 19th and first half of the 20th
century, specifically the period 1815–1939,
starting from the end of the Napoleonic
wars in 1815, which was immediately
followed by the Post-Napoleonic
depression in the United Kingdom (1815–30),
and
• Great Depression of 1929–39, which lead
into World War II
• Business cycles after World War II were generally more
restrained than the earlier business cycles, particularly
during the Golden Age of Capitalism (1945/50–
1970s), and the period 1945–2008 did not experience
a global downturn until the Late-2000s recession.
• Economic stabilization policy using fiscal
policy and monetary policy appeared to have
dampened the worst excesses of business cycles,
and automatic stabilization due to the aspects of
the government's budget also helped mitigate the
cycle even without conscious action by policy-makers.
Features of Business Cycle
 Recurring Fluctuations
 Business Cycles are Recurrent but not

periodic.
 Period of business cycle is longer than a year
 These are swings in national income, output

and employment causing expansion and

contraction.
Features of Business Cycle
 Cyclic patterns are neither smooth nor
regular.
 Easily distinguishable from seasonal or

random fluctuations
 Cyclic patterns are observed over long time

period.
Types of Business Cycles
1. Short Kitchin cycle
 Minor cycle
 40 months
2. Long Jugler cycle
 Major cycle
 Fluctuation of business activity between
successive crises
 Average 9 and a half years
3. Very long Kondratieff cycle
 Longer waves of cycle of more than 50 yrs
 Made of 6 Jugler cycles
4. Building cycles
 Relates to construction of buildings
 Fairly regular duration
 Average 18 yrs
5. Kuznets cycle
 New type of cycle
 16 - 22 yrs
Phases of Business Cycles
 Peak
 Crash
 Recession
 Trough & Depression
 Recovery
 Expansion
 Boom
Package
Stages of business cycle
Peak
 High degree of capacity utilization is
supported by matching demand.
 Increase in demand reflect more in increased

prices rather than on increased output.

 Excess demand conditions leading to high

interest and wages levels.

Crash
 Very short period during which momentum of
peak is broken.
 Could be induced by external shock.
 Sets precondition of recession.
 Economic conditions are uncertain and

speculation is rife.
 Crash if managed well, may return to its

previous peak level.

Recession
 Fall in the level of aggregate economic
activity.
 Squeezes prices margin.
 Fall in investment and capacity utilization

levels dip low.

 Includes shift of capital among industries.
Trough or Depression
• If recession not checked, it leads o trough.
• Situation of low level of activity, economy
believed to be at bottom.
• If trough is deep, it said to be depression.
• Minimum level from which economy cannot
slump further.
• The situation warrants strong macroeconomic
policy action and a structural shake up.
• Duration depends upon nature of economy
and state policy.
Recovery
• Follows trough or depression.
• Future Expectations are positive and
optimistic.
• New investment takes place , signs of
demand picking up.
• Transitional phase between trough &
expansion.
• Sensitive situation, chances of receiving a
shock if macroeconomic policy misfires.
Expansion
 Stage from recovery to the next peak.
 Characterized by rising demand and output.
 Growth picks up at accelerated pace.
 As economy reaches peak level, bottlenecks

appear.
 Costs and prices begin to rise.
 Growth rate tends to slow, national income

reaches peak.
Boom
 Extreme position of peak.
 Situation arises when in order to meet

demand, labour and capital work beyond

normal hours.
 Unsustainable in the log run.
 Economy gets overheated & heads towards

crash.
How do Business cycle occur?
 Demand driven Business cycle
 The monetary approach
 Policy induced cycles
 Political Business cycles
 Imported Cyclical Fluctuations
Measures to control Business Cycles
 Monetary policy
 Fiscal policy
 Direct controls
Business Cycle Theories
 Hawtrey’s monetary theory
 Schumpeter’s theory of innovation
 Keynes’s theory
 Hick’s model of trade cycle
Indicator of business cycle
• Hours of production workers in manufacturing
• New claims for unemployment insurance
• Value of new orders for consumer goods
• New orders for plant and equipment
• Building permits for private houses
• Change in commodity prices
• Money growth rate
• Personal income
• Manufacturing and trade sales
References
 Advanced Economic theory- ML Jhingan
 Business Environment Suresh Bedi
 Indian economy- SK Misra, VK Puri
 Wikipedia.org
Thank you