business cycle managerial economics
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Business Cycle
Business Cycle-Martin Thomas
The term business cycle is referred to the recurrent ups and downs in the level of economic activity that extend over a period of time. The business fluctuations occur in aggregate variable such as national income, employment and price level.
Business cycle is also called as “Trade Cycle”
4 Phases of Business Cycle
Prosperity Phase : Expansion or Boom or Upswing of economy.
Recession Phase : from prosperity to recession (upper turning point).
Depression Phase : Contraction or Downswing of economy.
Recovery Phase : from depression to prosperity (lower turning Point).
Business Cycle-Martin Thomas
Prosperity: Expansion & Peak
Business Cycle-Martin Thomas
When there is an expansion of output, income, employment, prices and profits, there is also a rise in the standard of living. This period is termed as Prosperity phase.
Rise in the national output & trade Rise in consumer and capital expenditure Rise in the Price of raw materials and
finished goods Rise in the level of income & employment
Fig.1
Recession & Turning Point
Business Cycle-Martin Thomas
During a recession period, the economic activities slow down. When demand starts falling, the overproduction and future investment plans are also given up. There is a steady decline in the output, income, employment, prices and profits.
Depression & Trough
Business Cycle-Martin Thomas
When there is a continuous decrease of output, income, employment, prices and profits, there is a fall in the standard of living and depression sets in. During the phase of Depression:
The growth rate become negative The level of national income and expenditure
declines Price of consumer and capital goods decline Workers lose their job
Recovery Phase
Business Cycle-Martin Thomas
As the recovery gathers momentum, some firms plan additional investment; some undertake renovation programmes, and some undertake both. These activities generate construction activities in both consumer & capital goods sector. As a result more employment is generated and wage rates moving upward.
Business Cycle-Martin Thomas
TROUGH
Fig.2
Business Cycle-Martin Thomas
Fig.3
Business Cycle-Martin Thomas
Thank you…