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Business cycle

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Business cycle: Introduction, Features, Phases of Business cycle

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Business cycle

  1. 1. BUSINESS CYCLE PRESENTED BY SIMRAN kAUR
  2. 2. INTRODUCTION • Business cycle can be defined as a periodically recurring wave like movements in aggregate economic activity reflected in simultaneous fluctuations in major macro-economic variables. • R.A.Gordon: “recurring alteration of expansion and contraction in aggregate economic activity, the alternating movements in each direction being self- reinforcing and prevailing virtually all parts of economy.”
  3. 3. FEATURES OF BUSINESS CYCLE • Occurs periodically • International in character • Wave like • Cumulative • Cycle will be similar but not identical
  4. 4. PHASES OF BUSINESS CYCLE PHASE 1: Peak PHASE 2: Recession PHASE 3: Trough PHASE 4: Recovery
  5. 5. PEAK PHASE • Economy is booming • National income of the country is high • Full employment • Consumption and investment is high • Tax revenue is high • Wages and profit will increase • Inflationary pressure in economy
  6. 6. RECESSION PHASE • Output and income fall • Reduction in consumption and investment • Tax revenue begins to fall • Government expenditure begins to benefit society • Wages demands moderate • Unemployment rises • Import and inflationary pressure declines
  7. 7. TROUGH PHASE • Economic activities are low • Mass unemployment exists • Consumption, investment and imports will be low • Pricing may be falling
  8. 8. RECOVERY PHASE • National income and output begins to increase • Unemployment falls • Consumption, investment and import begin to rise • Workers demand more wages • Inflationary pressure begins to mount
  9. 9. THEORIES ON BUSINESS CYCLE 1. Sunspot theory 2. Psychological theory 3. Monetary theory 4. Overinvestment theory 5. Oversavings theory 6. Innovative theory
  10. 10. SUNSPOT THEORY Depending on climatic changes, agricultural products are produced.
  11. 11. PSYCHOLOGICAL THEORY During depression or crisis of any business organization, it is completely based on the psychology of the entrepreneur as to whether the organization can be revived or shut down.
  12. 12. MONETARY THEORY Demand and supply of money is the primary reason for economic fluctuations of a country.
  13. 13. OVERINVESTMENT THEORY If the organizations and individuals save more and invest a huge amount then their expectations on increase in their returns.
  14. 14. OVERSAVINGS THEORY Increase in savings and investment will bring down the consumption which will reduce the demand for the goods in the market.
  15. 15. INNOVATIVE THEORY More innovations lead to new technology and new business that leads to prosperity in the economy
  16. 16. THANK YOU!!!

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