Post on 19-Jul-2015
INTRODUCTION• The alternating period of expansion or
economic prosperity and contraction or
recession in economic activity is called
business cycles.
• These fluctuations in economic activity
is that they are recurrent and have been
occurring periodically in more or less
regular fashion.
BUSINESS CYCLES :ECONOMIC
SENSE
• Recession creating unemployment.
• Fluctuation in economic activity.
• Inflation erodes real income.
TYPES OF PHASES OF BUSINESS
CYCLE
• Expansion: Boom, Upswings, Prosperity
• Peak: upper turning point
• Contraction: Downswings, depression or
recession
• Trough: lower turning point
FEATURES OF BUSINESS CYCLES
❑ Business cycles occurs Periodically.
Irregularity
Distinct phases
Duration can vary
❑ Business cycles are Synchronic.
regular in single industry sector
Fluctuation in Business Cycle
when-
Level of production
Employment Opportunities
Investment
Consumption
Rate of Interest
Price Level
EFFECT ON GOODS
Durable
• Investment is volatile and unstable
depending on profit expectations of
private entrepreneurs.
Non-Durable
• Consumption of Non-Durable goods does
not vary much during different phases of
business cycle.
• Households maintain a great stability in
consumption of non- durable goods.
IMPACT ON INVENTORIES OF GOODS
• Immediate impact on inventories of
goods.
• When depression sets in , the
inventories start accumulating
beyond the desired level
• When Recovery starts the
inventories goes below the desired
level . This encourages more
production .
FLUCTUATIONS IN PROFIT
• Profit fluctuations are more than
any other income .
• There is a condition of uncertainty.
• Uncertainty make it difficult to
forecast the future economic
conditions .
• If the profit is negative then the
business goes bankrupt and suffer
huge losses .