BUSINESS

CYCLES

INTRODUCTION• The alternating period of expansion or

economic prosperity and contraction or

recession in economic activity is called

business cycles.

• These fluctuations in economic activity

is that they are recurrent and have been

occurring periodically in more or less

regular fashion.

BUSINESS CYCLES :ECONOMIC

SENSE

• Recession creating unemployment.

• Fluctuation in economic activity.

• Inflation erodes real income.

PHASES OF BUSINESS CYCLE

TYPES OF PHASES OF BUSINESS

CYCLE

• Expansion: Boom, Upswings, Prosperity

• Peak: upper turning point

• Contraction: Downswings, depression or

recession

• Trough: lower turning point

FEATURES OF BUSINESS CYCLES

❑ Business cycles occurs Periodically.

Irregularity

Distinct phases

Duration can vary

❑ Business cycles are Synchronic.

regular in single industry sector

Fluctuation in Business Cycle

when-

Level of production

Employment Opportunities

Investment

Consumption

Rate of Interest

Price Level

EFFECT ON GOODS

Durable

• Investment is volatile and unstable

depending on profit expectations of

private entrepreneurs.

Non-Durable

• Consumption of Non-Durable goods does

not vary much during different phases of

business cycle.

• Households maintain a great stability in

consumption of non- durable goods.

IMPACT ON INVENTORIES OF GOODS

• Immediate impact on inventories of

goods.

• When depression sets in , the

inventories start accumulating

beyond the desired level

• When Recovery starts the

inventories goes below the desired

level . This encourages more

production .

FLUCTUATIONS IN PROFIT

• Profit fluctuations are more than

any other income .

• There is a condition of uncertainty.

• Uncertainty make it difficult to

forecast the future economic

conditions .

• If the profit is negative then the

business goes bankrupt and suffer

huge losses .

INTERNATIONAL IN NATURE

• Business cycle is international in nature.

• Once started in one country it spread to other countries through trade relation between them .

• Example : Depression of 1930’s in USA and Great Britain engulfed the entire capital world .