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Presented by :- Manoj Kumar, Bharti,Nivedita,Himanshu, Gaurav Jain
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A business cycle can be defined
as wavelike fluctuations of business activity characterized by recurring phases of expansion
and contraction in periods varying from three to four years.
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� It is a wave like movement.
� It is synchronic in nature.
� Recurring fluctuations.
� Period of business cycle is longer than
a year.� Presence of alternative forces of
contraction and expansion.
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.
� Volatility of investment spending.� Fluctuations in government
spending .� Technological innovations.� Variations in inventories.
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Phases of Business Cycle
Prosperity Recession
Depression Recovery
Peak
Trough
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PROSPERITY
Upswing stage/ ExpansionyExpectation of rising profits.yDemand for raw materials increases.
y More employment.yEarning power increased.yDemand for consumption of goods
increases.yModest increase in price level.yMarginal increase in profit .
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Expansion reaching its height
(PEAK):y Profit increasing rapidly y Rising share prices and confidence in prospects
of business induce banks to expand credit
facilitiesresulting in increased investments.y Demand for consumption goods increases .y Increase in costs.y
Piling of inventories .y Production activity much faster than
consumption.-----leading to end of phase of prosperity.
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End of expansiony Or beginning of recession---due to narrowing down of
gap b/w cost of production and the price of goods.
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Recessiony Gradually crash of stock market caused by the
realization that profits can no longer be maintained.
y Dramatic fall in production of capital goods.y Demand for consumption goods fall.
y Distortion in cost structure (as cost does not fall in thesame proportion as the price.)
y A bandonment of investment programmes.y Failure of some small business create panic.
y Employment suffers.
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Depressiony Growth rate enter into negative phase.
y Notable fall in production and mass unemployment.
y Substantial reduction in income of the people and
demand of consumer goods.y Price level fall to a greater extent gradually.
y Contraction of credit.
y A ll the economic activities touch the bottom this is
called trough.
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Recoveryy Is Gradual..
y Prices stop falling.
y Investors & Producers starts gaining confidence.y Demand for durable goods cannot be postponed
indefinitely.
y Firms start utilizing idle capacity.
y Slow rise in prices accompanied by small rise in profit.
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..To be continued
y Government take initiative to build up the losteconomic activity.
y
New investment takes place in capital goodsindustries.
y The volume of employment also stately increases.
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Table 1:Expansions and Recessions in Last
50 Years
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Table 2:Expansions and Recessions in Last
50 Years