business cycle eco viva sybms

8/12/2019 Business Cycle Eco Viva Sybms

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BUSINESS CYCLE

IS THE ECONOMY GETTING BETTER

OR WORSE?


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BUSINESSCYCLE

The term business cycle refers to economy-wide fluctuations in production, trade, and

general economic activity.

Business cycle fluctuations occur around a

long-term growth trend and are usuallymeasured by considering the growth rate

of real gross domestic product.

Business Cycles are also known as Trade

Cycles.


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In recent years economic theory hasmoved towards the study of economic

fluctuation rather than a business cycle.

Keynesian Theory: Fluctuations in

aggregate demand cause the economy to

come to short run equilibrium at levels that

are different from the full employment rate

of output. These fluctuations express

themselves as the observed business cycles.

IS IT CYCLE OR FLUCTUATION?


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PHASES OF BUSINESS CYCLE

A business cycle is a sequence of economicactivity in a nation's economy that istypically characterized by Five phasesExpansion or Recovery, Peak, Recession,

Trough & Depressionthat repeatthemselves over time.

Economists note, however, that completebusiness cycles vary in length. The duration

of business cycles can be anywhere fromabout two to twelve years, with most cyclesaveraging about six years in length.


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EXPANSION PHASE

A phase of the business cycle when the economymoves from a trough to a peak. It is a period whenbusiness activity surges and gross domestic productexpands until it reaches a peak. Also known as an"economic recovery."

An expansion isone of two basic business cycle phases.The other is contraction. The transition fromexpansion to contraction is termed a "peak.Expansions last on average about three to four yearsbut have been known to last anywhere from 12 months

to more than 10 years. Much of the60s was a time ofexpansion which lasted almost nine years.


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THE EXPANSION PHASE IS DEPICTED BY THE UPWARD SLOPING

SEGMENTOF THE CYCLICAL LINE POSITIONED ABOVE THE

STEADY GROWTH LINE.

EXPANTION RESULTSINTO TOTAL INVESTMENT,GROWTH IN

EMPLOYMENT,OUTPUT,INCOME AND DEMAND INCREASES

LEADINGTO INCREASE IN SALES,PROFIT,INVESTMENT DEMAND

AND THE GENERAL PRICE LEVEL.

INVENTORYLEVEL RISES AND INTEREST RATES RISES DUE TO

RISING INVESTMENT DEMAND.

DUE TO RISING PRICE LEVEL,REAL INTEREST RATES ARE LOW.

THE PROFITABILITY IS HIGHER OF FIRMS DUE TO HIGHER

DIVIDENT DECLARATION.

IT LEAD TO RISEIN STOCK PRICES.

THUS DURING EXPANSION,THE REAL NATIONAL INCOME

STEADILY RISES.

EXPANSION PHASE


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EXAMPLES OF EXPANSION OF INDAIN ECONOMYNARENDRA MOD

The man who promises to lift Asias

number-three economy from its

longest stretch of sub-five per cent

growth in a quarter-century.


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THE DREAM OF NEW INDIA

1) 100 Smart Cities: Giving direction to Modi's vision of building multiple smartcities in India, Jaitley said the government will aim to spend Rs 7060 crore for 100smart cities.

2) Skill India Programme:Looking to harness the demographic dividend,

government will work on skill development of youth. The government announcedthe launch of a national Multi-Skill programme called Skill India

3) Housing for all by 2022:Stating that the government is committed toendeavour to have housing for all by 2022,government will extend additional taxincentive on home loans to encourage people, especially the young, to own houses.

4) Swatchh Bharat Abhiyan:Moving towards NDA government's 'Swachh BharatAbhiyan', "Swachh Bharat Abhiyan,the need for sanitation is of utmost

importance."


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5) Ganga cleaning: With focus on river linking studyThe government also proposes to allocate Rs 2037crore to clean up Ganga.

6) Solar & renewable energy:Jaitley announced

several initiatives for strengthening energy sector. Aplan proposed to take up Ultra Mega Solar PowerProjects in Rajasthan, Gujarat, Tamil and Laddakh. Asum of Rs 500 crore is allocated for this purpose.

7) Promoting tourism: The budget proposes to create 5tourist circuits around specific themes for which a sumof Rs 500 crore has been set aside in the currentfinancial year.

THE DREAM OF NEW INDIA


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E-COMMERCE

In 2012, Cross-border ecommerce sales reached $300billion-, while global online trade is expected to soarto $1.4 trillion by 2015, presenting multi-channelretailers with limitless business opportunities forinternational expansion. In China and the US alone,

half a billion online shoppers surf the web each dayfor the best deals. Global acquirers can help retailerswith innovative solutions to overcome challengesposed by serving a diverse audience with varyingconsumer expectations, in multiple languages,

solutions which can make cross-border ecommercedomestic and truly profitable.


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PEAK OF BUSINESS CYCLE


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PEAK

The economy stops growing [reached the top] GDP reaches maximum.

Business cant produce any more.

Business cant hire any more.

Cycle begins to contract.


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PEAK

An expansion, like a contraction, comes toan end.

It is a end of an expansion, and the onset of

a contractionA peak is the highest level of the business

cycle, might seem like a good thing, it really

has a down side.

A peak means that the expansion hasended and that a contraction is about to

begin.


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PEAK

The Peak phase is when the economysexpansion slows

Its usually the last quarter before the

recession starts

Its is when inflation rears ugly head.


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IMPORTANT THINGS

Dont quit the job you inAs peak is also starting of contraction as its

end of expansion

Jobs will become scarce

If you quit, you may not find another job


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IMPORTANCE

When wages will be highest?When will unemployment be at its lowest?

When business profits be highest?

Answer:-

When Business cycle

will be at its PEAK


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RECESSION

In economics, aRecessionis a business cycle contraction. It is a

general slowdown in economic activity.

Macroeconomic indicators such as GDP (gross domestic

product), investment spending, capacity utilization, household

income, business profits, and inflation fall, while bankruptciesand the unemployment rate rise.

What is a Recession?

A drastic slowing of the economy. Where gross national or

domestic product has fallen in two consecutive quarters. A

recession would be indicated by a slowing of a nation's

production, rising unemployment and falling interest rates,

usually following a decline in the demand for money. A popular

distinction between recession and depression is: 'Recession is

when your neighbours lose his job; depression is when you lose

yours!


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GRAPH


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What causes it? An economy which grows over a period of time tends to slow

down the growth as a part of the normal economic cycle.

A recession normally takes place when consumers lose

confidence in the growth of the economy and spend less.

This leads to a decreased demand for goods and services,

which in turn leads to a decrease in production, lay-offs and a

sharp rise in unemployment.

Investors spend less as they fear stocks values will fall and

thus stock markets fall on negative sentiment.

CAUSES


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EXAMPLE

What Was The Great Depression of 1929?:

The Great Depression of 1929 was aworldwide depression that lasted for 10 years. Itskickoff in the U.S. economy was Black Thursday"October 24, 1929, when 12.9 million shares ofstock were sold in one day, triple the normalamount. Over the next four days, prices fell 23%.This was known as the stock market crash of 1929.

Unemployment Reached 25% During the GreatDepression:

By 1933, the height of theDepression ,Unemployment had risen from 3% to25% of the nations workforce. Wages for thosewho still had jobs fell 42%. GDP was cut in half,from $103 to $55 billion.


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Lehman Brothers Holdings Inc.(former NYSE ticker

symbol LEH) was a global financial services firm. Beforedeclaring bankruptcy in 2008, Lehman was the fourth-largest investment bank in the US (behind Goldman Sachs,Morgan Stanley, and Merrill Lynch), doing business ininvestment banking, equity and fixed-income salesand trading (especially U.S. Treasury securities),research, investment management, private equity,and private banking.

At 1:45AM on September 15, 2008, the firm filedfor Chapter 11 bankruptcy protection following the massiveexodus of most of its clients, drastic losses in its stock, anddevaluation of its assets by credit rating agencies. Lehman'sbankruptcy filing is the largest in US history,

LEHMAN BROTHERS


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THE IMPACTS IN INDIA ARE

Reduced liquidity in the Indian economy

Reduced industrial output

Reduced job opportunities

Stock Market is lingering in the bottom

Real estate market has started to take a beating

Inflation has increased

GDP has come down and the GPD forecast for the next two quarters are onlyaverage.


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Big populous countriesChina, India, Indonesiadid not tip intorecession; they merely suffered slower growth. Brazil and the Asian tigers

saw output fall but bounced back

Economics: What are the main reasons India survived the global

economic recession of 2008?

India's growth rate did decline. But India would also emerge as thecountry with 2nd highest growth rate behind China. What are the main

reasons India 'survived the crash'?

What my knowledge of economics tells me is India being late in opening

it's doors till 1991 to globalization helped India a lot as it wasn't as much

dependent on US as many other countries. Also a high rate of savings -with lesser dependence on banks- helped India survive the crash.

INDIA survived..


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KINGFISHER

AIRLINES

STRIKE

LIQUOR


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TROUGH AND DEPRESSION

Definition Trough:-The stage of the economy's

business cycle that marks the end of a

period of declining business activity and the

transition to expansion.

Depression:-

a depressionis a sustained, long-term

downturn in economic activity in one ormore economies. It is a more severe

downturn than a recession, inevitable part

of capitalist economy.


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During depression, the rate of growth of economybecomes negative and the national income beginsto fall. Unemployment levels rises rapidly due tofalling aggregate investment. The general pricelevel falls rapidly. Interest rates are very low;

however, demand for credit is also very low.Numerous firms makes loses and stocks pricesbegin to fall rapidly. At the lowest end of thecyclical curve, the period of depression comes toan end, which is called as Trough. Trough is the last

stage of both recession and depression. After trough, recovery and expansion takes place

TROUGH AND DEPRESSION


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1) The great Depression of 1929 The Great Depression was a severe worldwide economic

depression in the decade preceding World War II. The timing

of the Great Depression varied across nations, but in most

countries it started in 1930 and lasted until the late 1930s or

middle 1940s. It was the longest, deepest, and mostwidespread depression of the 20th century.

In the 21st century, the Great Depression is commonly used as

an example of how far the world's economy can decline. The

depression originated in the U.S., after the fall in stock prices

that began around September 4, 1929, and becameworldwide news with the stock market crash of October 29,

1929 (known as Black Tuesday).

The Great Depression had devastating effects in countries rich

and poor. Personal income, tax revenue, profits and prices

dropped, while international trade plunged by more than50%. Unemployment in some countries rose as high as 33%.

EXAMPLES


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2)THE DEPRESSION IN ZIMBABWE

The economy of Zimbabwe Shrunk significantly after

2000, resulting in a desperate situation for the

country and widespread poverty and an 80%

unemployment rate. The participation from 1998 to

2002 in the war in the Democratic Republic of the

Congo set the stage for this deterioration by drainingthe country of hundreds of millions of dollars.

Hyperinflation has been a major problem from about

2003 to April 2009, when the country suspended its

own currency. Zimbabwe faced 231 million per cent

peak hyperinflation in 2008. Zimbabwe has alsosustained the 30th occurrence of recorded

hyperinflation in world history. Labor market was

highly regulated, hiring a worker was cumbersome,

firing a worker was difficult and unemployment has

risen to 94%.


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ZIMBAWBE'S GDP


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CASH COW

DOG

COMPANY: MAHINDRA


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SLICE


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RECOVERY OF BUSINESS CYCLE


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RECOVERY

An economic recovery is the phase of

the business cycle following a recession,

during which an economy regains and

exceeds peak employment and outputlevel increases.


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RECOVERY

Time

L

evelofbusines

sactivityThe upswing part

of the cycle.Real output in

the economy is

increasing

Unemployment

rate is declining

EXPANSION AND RECOVERY


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WHY IS RECOVERY IMPORTANT IN AN ECONOMY?


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PROBLEMS FACING AN ECONOMY RECOVERING FROM

RECCESSION

Low Consumer confidence.

Ineffectiveness of Monetary Policy.

Effectiveness of Fiscal Policy.

Deflation.

Hysteresis.

Supply side shocks.


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HOW TO RECOVER FROM ECONOMY

To recover from a recession there needs tobe either a rise in AD or a readjustment in

prices and wages.

The banks can reduce the rate of interest

so that there will be more investmentwhich will lead to job opportunities.

The economists use a variety of indicators

to determine whether a recovery is in

progress.


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A RECOVERY PEROID IS TYPICALLY CHARACTERIZED

BY

There is high level of growth in real gross

domestic product and hence the economy

becomes stronger.

Since more jobs are created there is

increase in employment.More goods and services are supplied by

business, therefore there is increase in

corporate profits.


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EXAMPLE


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THE END

CREDITS :

KAREENA DUA

SAMKEET GADA

SHUBHAM KADU

DHAVAL BHATT

SHUBHAM MHATRETRISHA MEHTA

BHAVIK DESAI

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