mrktng b_group5_business cycle

8/7/2019 Mrktng B_group5_Business cycle

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Business CycleBusiness CycleGROUP 5

Ankita BobbyApurv Sharma

Vineetha K.Raghvandra YadavRohit PandeyVaibhav Joshi


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Business CyclesBusiness Cycles The pattern of real GDP rising and then.falling is called Business Cycle The value of real GDP over time shows .periodic fluctuations in its movement It is the recurrent swings in the real GDP.which follows a wave like pattern :The four phases of business cycle Trough Expansion Peak Recession


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The business cycleThe business cycle

O

Real

GDP

Time

1

2

3

1

2

3

4Actual output

Trend output

4

4

Potential output

1 TROUGH

2 EXPANSION3 PEAK4 RECESSION


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Features of Business CyclesFeatures of Business Cycles

V a r i a b l e Expansion Peak Recession TroughI n d u s t r i a lP r o d u c t i o n Increase Rapidincrease Decline Lowest

D e m a n d Increase Highest Decline LowestP r i c e s Increase Rapidincrease decline rapid declineC o s t Increase Rapiddecrease Gradualdecline Rapid declineI n v e s t m e n t Increase High Falls

slowlyFalls rapidly

E m p l o y m e n t Gradualincrease Rapidincrease Falls Rapid fallsBa n k c r ed i t Liberal Very liberal Falls Rapid falls


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Ref: MB p.136

Indicators of Business CyclesIndicators of Business Cycles There are variables other than real GDP.that influence the business cycle Theyare classified into t h r e e :( )1 :Leading Indicators generally change.before real GDP changes Can be used to forecast future.output

( )2 :Coincident Indicators tend to change atthe same time as real output changes :e g as real output increasese m p l o y m e n t a n d s a l e srise


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Indicators of Business CyclesIndicators of Business Cycles

( )3

:Lagging Indicators

do not change untilafter the value of real GDP has changed

:e g ,as output increases jobs are, ,created more workers are hired and asa result u n e m p l o y m e n t .falls A l l t h e s e t h r e e g r o u p s o f i n d i c a t o r s a r eu s e d t o g e t h e r t o i d e n t i f y t h e p e a k s a n dt r o u g h s i n b u s i n e s s c y c l e s .


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Sources of Business cycleSources of Business cycle

AGGREGATE DEMAND

AGGREGATE SUPPLY

The degree to which real GDPdeclines or increases depends on the .amount by which AD and AS curve shifts


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Sources of Business CyclesSources of Business CyclesPolitical

if politicians manipulate the economyfor electoral advantage :F o r e x a m p l e loose fiscal policybefore elections in order to manipulate;demand tight fiscal policy afterelections ( )Psychological Speculative

Changes in expectations about future(profits are more important bursting , - ,of bubbles dot com sub prime crisis.etc )


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Reasons for ShocksReasons for ShocksT e c h n o l o g i c a l Technological shocks as the main reason( , ,innovation oil price increase safety.)regulations etcE x t e r n a l One country s exports are another ,country s imports ,therefore the demandfor imports mostly depends on the other ( . . , )country s income e g oil price shocks U n pr ed ic ta bl e f a ct or s Cyclical movements can also caused byhighly unpredictable factors such as, , .drought contraction of exports etc


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Business and a BoomBusiness and a Boom

A boom occurs when national output isrising at a rate faster than thetrend rate of growth It is characterised by HIGHconsumer, ,spending high business confidenceinvestments and profits .There is a lot more output


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Business cyclesBusiness cycles

:E c o n o m i c D e p re s s io n is a prolongedperiod of severe economic/contraction recession :E c o n o m i c R e c e s s i o n a period of ,significant decline in total output, ,income employment and trade lasting,from six months to a year and markedby widespread contractions in many ( )sectors of the economy NBER T w o c o n s e c u t i v e q u a r t e r s o fd e c l i n i n g r e a l G D P


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Characteristics of an EconomicCharacteristics of an EconomicRecessionRecession

Declining aggregate demand for output /Contracting employment risingunemployment &Sharp fall in business confidenceprofits Falling demand for imports Increased government borrowing Lower interest rates from central bank


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GLOBAL RECESSIONGLOBAL RECESSION

,w h e n U S s n e e z e s t h e r e s t o f t h ew o r l d c a t c h e s c o l d

-The United States accounts for onefourth of the world GDP and anysignificant slowdown is bound to have.reverberations elsewhere


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How recession affected IndiaHow recession affected India ( )The sectors least affected directly ,by the slowdown are Pharmaceuticals, & .FMCG Media Entertainment Those which will feel a moderateimpact of the global crises are, , ,Power Automobiles Retail.Hospitality and Tourism The sectors most severely affected are

, ,Banks Financial Services Real,Estate Infrastructure and.Information Technology


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,In terms of specific sectors the IT EnabledServices sector was a hit since a majority

%of Indian IT firms derive 75 or more of

.their revenues from the United States A recession in the United States has seen the

.loss of some jobs in India

Banks have suffered huge losses including the

, :-public sectors like PNB BANK OF INDIA etc asthey had exposure to instruments issued by

.Leyman and Merill Lynch

%The exports to US have dropped by 30 which

.will lead to an affect on indian economy


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How recession affected IndiaHow recession affected India

(FICCI Federation of Indian Chambers& )of Commerce Industry found that,with global recession inventories, ,industries like garments gems,jewellery textiles and chemicals

%had cut their production by 20%to 505 lakh people had lost their jobs in.the manufacturing industries ,The real estate also faced problemswhere the developers are finding it.hard to raise finances


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Measures to counter recessionMeasures to counter recession

:FISCAL POLICIES Governmentinfluences the economy by changing how.it spend and collects money

Tax rate cuts for business or.individual

More spending by the government to.create jobs


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Measures to counter recessionMeasures to counter recession

:MONETARY POLICIES Central Bankmanipulates the available supply of.money in the country

Reduce reserve ratios

.Lower the interest rates

Open market operations


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mrktng b_group5_business cycle

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