BUSINESS CYCLE

Rohan SolankiNikita GoudUmar KhanNikhat RajputPrabhu HosmaniAfreen Shaikh

What is a Business Cycle?

The term business cycle refers to the recurrent ups and downs in the level of economic activity, which extend over several years.

Definition: alternating increases and decreases in the level of business activity of varying amplitude and length.

How do we measure “increases and decreases in business activity?” Percent change in real GDP.

Why do we say “varying amplitude and length?” Some downturns are mild and some are

severe, whereas, Some are short (a few months) and some

are long (over a year). Do not confuse with seasonal fluctuations!

Periods of Business Cycle

The Short Kitchin Cycle (40 months).

The Long Jugler Cycle (9 ½ years).

The Very Long Kondratieff Cycle (50 years).

Building Cycle (18 years).

Kuznets Cycle (16-20 years).

Business Cycle : Diagram

Expansion ExpansionRecessionBo

om

Secular growth trend

Downturn

Upturn

Trough

Peak

0

Tota

l O

utp

ut

Characteristics : Peak Phase

Real output in the economy is at a high level.

Unemployment is low. Domestic output may be at its capacity.

Inflation may be high.

Characteristics : Contraction or Recession Phase.

Real output is decreasing. Unemployment rate is rising. As contraction continues, inflation pressure

fades. If the recession is prolonged, price may

decline (deflation). The government determinant for a recession

is two consecutive quarters of declining output.

Characteristics : Trough or Depression Phase

Lowest point of real GDP. Output and unemployment “bottom

out” This phase may be short-lived or

prolonged. There is no precise decline in output

at which a serious recession becomes a depression.

Characteristics : Expansion or Recovery Phase

Real output in the economy is

increasing. Unemployment rate is

declining. The upswing part of the cycle.

Business Cycle : PEPSICo. India

Growth Phase – Boom Phase

Launched in India in 1988 Consistent Growth.

Waves of optimism. Highest point of Expansion. Rise in profits, investment, sales,

employment etc.

Expansion

RETAIL MARKET SHARE OF BEVERAGE PRODUCTS

Colas66%

Fruit Drinks16%

Teas3%

Sports Drinks2%Bottled Water

13%

Recession

Uncertain downfall.

Controversies.

Outcome- Decline in profits, sales etc.

Revival

Turning point from depression into expansion.

A result of New Innovation.

SWOT of PEPSICo.

S- Strong brand name, corporate identity,Global distribution, New innovations.

W- Health Issues, misleadingadvertisements.

O- Growing demand, Expansion into newmarkets, faster growth.

T- Competition from coke, legislationhealth scares like France and Belgium.

To conclude…

As we have seen, a business cycle describes the phases of growth and decline in an economy.

The goal of an economic policy is to keep the economy in a healthy growth rate -- fast enough to create jobs for everyone who wants one, but slow enough to avoid inflation.

Unfortunately, life is not so simple. 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 confidence in the future and in policymakers, and does the opposite when confidence drops.

So a business cycle plays an important role in studying those factors.