Good morning to all! My report is about business cycle.

In this topic we explore

the concept of the business cycle, phases of business cycle and its implications
in the economy.
Let me define first the business cycle. (reading the definition from the slide)..
meaning A business cycle occurs due to the fluctuations that an economy
experiences over time resulting from changes in economic growth. Economists
try to discern where the economy is located and more importantly where it is
heading in order to deal with possibly adverse future economic events. When
the economy is at or is heading in an undesirable direction, economists may
apply fiscal or monetary policy tools to change the course of the economy.
In general, a business cycle describes changes in the demand-side of the
economy as measured by GDP, where:
GDP = C + I + G + NX
Over time, GDP does not remain constant and will change for many reasons,
economic and non-economic. Economic reasons include changes in
government policies such as taxes and interest rates. The non-economic
reasons are too many to even consider listing, but include factors such as war,
drought, natural and man-made disasters.
The defining part of the business cycle is a recession. Without a recession, the
economy doesn't really experience a business cycle, just a period of a prolonged
economic expansion.

Additional Exp..

1. Expansion:

high level of output and trade

high level of effective demand
high level of income and employment

rising interest rate

inflation
large expansion of bank credit
overall business optimistism

2. Peak:
Due to full employment of resources, the level of production is Maximum and
there is a rise in GNP. Due to a high level of economic activity, it causes a rise
in prices and profits. There is an upswing in the economic activity and
economy reaches its peak this is also called as a Boom period.

3. Recession Period
During a recession period, the economic activities slow down. When Demand
starts falling, the overproduction and future investment plans are also given
up. There is a steady decline in the output, income, employment, prices, and
profits. The businessmen lose confidence and become pessimistic. It reduces
investment. The banks and the people try to get greater liquidity, so credit also
contracts. Expansion of business stops, stock market falls. Orders are
cancelled and people start losing their jobs. The increase in unemployment
causes a sharp decline in income and aggregate demand.

4. Depression Phase
When there is a continuous decrease of output, income, employment, prices
and profits, there is a fall in the standard of living and depression sets in.
Features of depressions are:
Fall in volume of output and trade
Fall in income and rise in unemployment
Decline in consumption and demand
Fall in interest rate

Deflation
Contraction of Bank Credit
Overall business pessimism.

Causes of Business Cycles

-Internal Factors
Consumption; Business Investment; Government Activity
-External Factors
Inventions and Innovations
Wars and Political Events

Fiscal Policy

is represented by the executive and legislative branches of government and

captures changes in taxes (T) and government spending (G).

Monetary Policy is conducted by the central bank of a country - in the United

States this is the Federal Reserve Board.

The goals of economic policymakers are simple:

To maintain real GDP growth at a relatively constant, positive

level. For example, economists may desire 3.0% annual growth in
GDP (1).

Compatible with the growth in real GDP, keep the unemployment rate
at a level consistent with the full-employment level of
unemployment. Remember, full-employment is not zero unemployment,
but a level where all those in the labor force seeking work, can find a job
fairly quickly.

Minimize the level of inflation and keep it there. Optimally, the

economy will have a sustained low inflation rate, 3% or below for
example.

The goal of economic policy is to keep the economy in a healthy growth

rate. That's fast enough to create jobs for everyone who wants one but
slow enough to avoid inflation. Unfortunately, many factors can cause an
economy to spin out of control, or settle into depression. The most
important, over-riding factor is confidence of investors, consumers,
businesses, and politicians. The economy grows when there is faith in
the future and in policymakers. It does the opposite when confidence
drops.