BUSINESS CYCLE

PRESENTED BY-

Sathish.B
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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.
Business Cycle…
 Expansion: Increase in production and
prices, low interests rates.
 Crisis: Stock exchanges crash and multiple
bankruptcies of firms occur.
 Recession: Drops in prices and in output
high interests rates.
 Recovery: Stocks recover because of the fall
in prices and incomes.
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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What is Real GDP and Nominal
GDP??
 Real Gross Domestic Product
measures the value of all the goods
and services produced expressed in
the prices of some base year.
 The Nominal Gross Domestic Product
measures the value of all the goods
and services produced expressed in
current prices.
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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.
Business Cycle…
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 ?
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
Parts of Business Cycle:
Recession…
 Recession is a general slowdown in
economic activity over a long period of
time, or a business cycle contraction.
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 make take more
than a year of recovery for large
changes in unemployment. ?
Current Condition of 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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