1. 1. Business Cycles Presentation This is the collection of different presentations based on the Business Cycles from Slide share. Compiled by Sabelo Madise Institution: University of Johannesburg
2. 2. Business Cycle The business cycle is the periodic but irregular up-and-down movements in economic activity, measured by fluctuations in real GDP and other macroeconomic variables A business cycle is identified as a sequence of four phases: Contraction (A slowdown in the pace of economic activity) Trough (The lower turning point of a business cycle, where a contraction turns into an expansion) Expansion (A speedup in the pace of economic activity) Peak (The upper turning of a business cycle)
3. 3. BUSINESS CYCLES Business Cycles -- Periodic rises and falls that occur in economies over time. Four Phases of Long-Term Business Cycles: 1. Economic Boom 2. Recession Two or more consecutive quarters of decline in the GDP. 3. Depression A severe recession. 4. Recovery When the economy stabilizes and starts to grow. This leads to an Economic Boom. LG5 2-4
4. 4. PHASES OF THE BUSINESS CYCLE Expansion/Growth: During this phase of the business cycle, consumer and business spending rise. Peak: After a period of growth, an economy will reach a peak, where business is producing at or near full capacity, and the economy is at or near full employment.
5. 5. Indicators of Business Cycles There are variables other than real GDP that influence the business cycle. They are classified into three: (1) Leading Indicators: generally change before real GDP changes. Can be used to forecast future output. (2) Coincident Indicators: tend to change at the same time as real output changes for example: as real output increases employment and sales rise Ref: MB p.136
6. 6. Recession Recession: This is a phase when real GDP begins to decline. Consumers and business reduce their spending, unemployment rises, investment declines, and pessimism about the economy is likely to grow.
7. 7. Trough/Depression Trough/Depression: This is the lowest point of the business cycle. Factories will be operating below capacity, allowing unemployment to reach high levels
8. 8. Sources of Business cycle AGGREGATE DEMAND AGGREGATE SUPPLY The degree to which real GDP declines or increases depends on the amount by which AD and AS curve shifts.
9. 9. Business and a Boom A boom occurs when national output is rising at a rate faster than the trend rate of growth It is characterised by HIGH consumer spending, high business confidence, investments and profits There is a lot more output.
10. 10. A THOUGHT ON THE BUSINESS CYCLE The business cycle tends to be self- sustaining. In other words, when in a period of growth, the economy will continue to grow (jobs leading to jobs) until some event (internal or external) intercedes.
11. 11. CAUSES OF BUSINESS CYCLES External factors 1. Inventions and innovation: Major changes in technology can influence the business cycle. Usually technological changes move the economy in a positive direction, but this is not always so. 2. Wars and political events: The impact of such events on the economy are very fact specific- in other words, difficult to generalize about.
12. 12. Features of Business Cycles Variable Expansion Peak Recession Trough Industrial Production Increase Rapid increase Decline Lowest Demand Increase Highest Decline Lowest Prices Increase Rapid increase decline rapid decline Cost Increase Rapid decrease Gradual decline Rapid decline Investment Increase High Falls slowly Falls rapidly Employment Gradual increase Rapid increase Falls Rapid falls Liberal Very liberal Falls Rapid falls
13. 13. A Bad Cycle Less Spending Fewer Goods Produced Fewer Jobs
14. 14. A Good Cycle More goods produced More jobs More spending
15. 15. GOVERNMENT AND THE BUSINESS CYCLE In order to prevent the economy from running too hot (inflation) or too cold (recession/depression), the government often becomes involved in efforts to try and stabilize the economy. The government has two major tools to try and stabilize the economy and achieve its goals: fiscal policy and monetary policy.
16. 16. FISCAL POLICY Fiscal policy is the taxing and spending decisions that are made by the President and Congress. Fiscal policy actions of the government fall into two general categories: 1. Raise or Lower Taxes 2. Increase or Decrease Government Spending.
17. 17. During a Recession The Government can Lower taxes and/or Increase spending These actions boost the economy by putting more money in the hands of people so they can spend it. This is called Expansionary Fiscal Policy FISCAL POLICY
18. 18. Growth Phase Boom Phase Launched in India in 1988 Consistent Growth. Waves of optimism. Highest point of Expansion. Rise in profits, investment, sales, employment etc.
19. 19. Recession Uncertain downfall. Controversies. Outcome- Decline in profits, sales etc.
20. 20. References Aggarwal. A, Goyal. R, Jhamb. S, Gaurav. S, Karwa. A, & Rathi. R. (2012). Recesion in Japan& United State: http://www.slideshare.net/search/slideshow?searchfrom=header&q=Presentation+On+Recession+In+ Japan+%26+United+States.03 (March 2014) Bobby. A, Sharma. A, Vineetha. K, Raghvandra. Y, Rohit. P& Vaibhav. J. (2010). Business Cycles: http://www.slideshare.net/SameerAlam/mrktng-b-group5-business-cycle?qid=dbcecc0b-eb11-4020- b455-84c8c7d42ac9&v=default&b=&from_search=34. (05 March 2014) Akshbapna. D. (2014): Business cycles: http://www.slideshare.net/dakshbapna/business-cycle- 31444513?qid=123708e7-dd05-4886-b3f5-1ff309916edf&v=qf1&b=&from_search=2. 06 March 2014. Becker. B, (2013). Corporate credit and Business cycle: http://www.slideshare.net/GlobalUtmaning/bo- becker?qid=123708e7-dd05-4886-b3f5-1ff309916edf&v=qf1&b=&from_search=8. 05 March 2014. Singla. H, (2012). Business Cycle: http://www.slideshare.net/harshulsingla/business- cycle1?qid=123708e7-dd05-4886-b3f5-1ff309916edf&v=default&b=&from_search=21. 05 March 2014.