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BUSINESS CYCLE

BUSINESS CYCLE
Business Cycle refers to the fluctuations (moving up & down) of the business activities in a country. Fluctuations in production, employment, and incomes of the people. Fluctuations - maximum if government role is minimal. Fluctuations Industrially advanced countries.

 Definition:
KEYNES: Business cycle is a trade cycle composed of good trade changing with the period of bad trade. Good trade - which has rising prices and less of unemployment. Bad trade - which has less or falling prices and more of unemployment.

 Features of Business Cycle: Trade cycle occurs Periodically in a regular fashion (but time limit is not certain). Trade Cycle is Comprehensive - easily understood, (if in one industry then all). Durable/non-durable. Trade Cycle are like Waves in the sea. up and downs output, employment and income. (profit fluctuates) International in character. Trade Cycle has important feature Cyclical disturbances - Movement from prosperity stage to depression short duration recession to recovery long duration.

Classification of Business cycles: Periodically time period is different. 4 to 5 years / 9 to 10 years. Short business cycle: short waves up to 40 months. Kitchin Cycles Prof. Joseph Kitchin Britain and USA. Long business cycle: Long waves. Kondratieff Cycles Prof. Kondrateiff England and France long duration of 60 years - between 1780-1920.

PHASES OF TYPICAL BUSINESS CYCLE

DEPRESSION: First stage of a business cycle. Longer period of business activity, 3 - 4 yrs (far below than normal). Sharp reduction of production, mass unemployment, low employment, falling prices, falling profits, low wages, contraction of money supply, business failure. Business activity standstill manufacturing firms losses, shut down, hit agricultural commodities,banks collapse.

PHASES OF TYPICAL BUSINESS CYCLE

RECOVERY (Revival):

Second stage - Starts when the point of depression ends, Demand for basic consumer goods still exists. No Stocks - production starts slowly - workers get employment, Banks lend money, slow raise in prices. Revival starts by government expenditure, investment in new regions, changes in production techniques, etc.

PHASES OF TYPICAL BUSINESS CYCLE

PROSPERITY (Full Employment)

Third Stage increased production, high capital investment in basic (important) industries. Expansion of bank credit, High prices (demand inelastic) high profits high capital formation FULL EMPLOYMENT, Optimism among businessmen and industrialists.

PHASES OF TYPICAL BUSINESS CYCLE

BOOM (Over Full Employment) Fourth Stage Rapid increase in business activity, High stocks and commodity prices, high profits, overfull employment. Continuation of investment after full employment raise in prices (inflation in economy). Number of jobs more than number of workers. Over optimism - Carries the seeds of selfdestruction (losses) , Problems in various sectors, lack of factors of production will led to recession.

PHASES OF TYPICAL BUSINESS CYCLE

RECESSION : Fifth Stage Falling stage of boom period is recession. Feeling of over-optimism (more than sufficient), create problems in business enterprises, Prices collapse, slowly unemployment starts, Initial in capital goods unemployment begins spreads to other sectors/industries, Fall in income, expenditure, prices and profits. Land into depression.

Business Cycles
DIAGRAM:______. Business cycles are outdated. Cyclical fluctuations are predicted advance and suitable steps are taken.

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