BUSINESS CYCLE

G.KUMAR TAMILARASAN
TIMOTHY IMMANUEL
INTRODUCTION
Alternating periods of expansion and contraction
in economic activity is called as BUSINESS
CYCLE
•Expansion period- period of high income, output
and employment

•Contraction period- period of low income, output

and employment
Phases of Business cycle
 Expansion(Boom, Upswing or Prosperity)
 Peak ( upper turning point)
 Contraction (Downswing, Recession Or
Depression)
 Trough (lower turning point)
Business Cycle without
growth
LE
V PEAK PEAK
EL
O ex ex

contra
F pa contr pa
G ns ns
io

ction
N io
actio

P n n
n

TROUGH TROUGH TROUGH

TIME
Business cycle with growth

con
trac
tion

expansion
con
trac
LEVEL OF GNP tion

ans ion
exp

TIME
Expansion & Prosperity
 Level of production is at max level
 Full employment of resources
 Employment increase
 Prises will also rise
 People enjoy a high standard of living
 Investment increases
Contraction &
Depression
 Expansion is followed by contraction
 Investment decreases
 Level of employment reduces
 Prices fall due to fall in demand
 Capital goods & consumer goods
industries hits badly
 EX: 1929-1933 The great depression

TROUGH & REVIVAL
 Lowest level of economy.
 Recovery is done by stimulation of
investment.
 This recovery is the turning point from
depression to expansion.
KEYNES’ Theory
 Changes in the level of aggregate
demand will bring about fluctuations in
the level of income, output and
employment.

KEYNES’ contribution
 Fluctuation in investment brings changes
in aggregate demand and that in turn
affects the economic activity.
 Fluctuations in investment demand are
caused by change of expectations in
making the profit.
 Investment change affects the change in
the level of income and employment
Features of Business
cycle
 No same regular period is maintained.
 Duration may vary from min 2yrs to max
of 12yrs.
 Depression or contraction occurs
simultaneously in all industries or
sectors of the economy. Similar
process happens for expansion also
 Fluctuation occurs in employment,
investment, price level, consumption
and level of production.
•

•Investment and consumption of durable

goods such as cars, houses, T.Vs etc are
affected most
•Profits fluctuate more than any other type

of income.
•Immediate impact of depression is on the

inventories of goods.
•It is international in character.

•
 1980 - 81 4011 6.68
Year Real GDP (Rs. Billion) Growth Rate %
1981 - 82 4251 5.65
1950 - 51 1405 0.00
1982 - 83 4381 2.97
1951 - 52 1437 2.23
1952 - 53 1478 2.77 1983 - 84 4717 7.12
1953 - 54 1568 5.74 1984 - 85 4921 4.15
1954 - 55 1635 4.10 1985 - 86 5140 4.26
1955 - 56 1677 2.50 1986 - 87 5363 4.16
1956 - 57 1772 5.36
1987 - 88 5568 3.68
1957 - 58 1751 -1.20
1958 - 59 1884 7.06 1988 - 89 6151 9.48
1959 - 60 1925 2.13 1989 - 90 6563 6.28
1960 - 61 2061 6.60 1990 - 91 6929 5.28
1961 - 62 2125 3.01 1991 - 92 7019 1.28
1962 - 63 2170 2.07
1992 - 93 7378 4.87
1963 - 64 2280 4.82
1993 - 94 7813 5.57
1964 - 65 2453 7.05
1965 - 66 2363 -3.81 1994 - 95 8380 6.77
1966 - 67 2387 1.01 1995 - 96 8996 6.85
1967 - 68 2580 7.48 1996 - 97 9701 7.27
1968 - 69 2649 2.60 1997 - 98 10166 4.57
1969 - 70 2821 6.10
1998 - 99 10827 6.11
1970 - 71 2963 4.79
1999 - 00 11484 5.72
1971 - 72 2993 1.00
1972 - 73 2983 -0.34 2000 - 01 11986 4.19
1973 - 74 3119 4.36 2001 - 02 12679 5.47
1974 - 75 3155 1.14 2002 - 03 13184 3.83
1975 - 76 3439 8.26 2003 - 04 14305 7.84
1976 - 77 3482 1.23
2004 - 05 15294 6.47
1977 - 78 3742 6.95
1978 - 79 3948 5.22 2005 - 06 16670 8.25
1979 – 80 3743 -5.48 2006 - 07 18204 8.43