economic cycle.ppt
-
Upload
farooq-ahmad -
Category
Documents
-
view
17 -
download
1
Transcript of economic cycle.ppt
-
7/18/2019 economic cycle.ppt
1/32
The Economic Cycle
AS Econom cs
PowerPoint Briefings 2006PowerPoint Briefings 2006
tutor2ututor2u
http://www.tutor2u.net/http://www.tutor2u.net/http://www.tutor2u.net/ -
7/18/2019 economic cycle.ppt
2/32
Mrs G
What is a business cycle?
http://www.tutor2u.net/http://www.tutor2u.net/ -
7/18/2019 economic cycle.ppt
3/32
Mrs G
Syllabus aims within Business Cycle
You must be able to
Identify the phases of the business cycle
Identify the causes of Business cycleinstability, (durables, stock levels and
investment decisions)
Explain the Theories Of Business ycle
!o" to control Economic ycle
http://www.tutor2u.net/http://www.tutor2u.net/ -
7/18/2019 economic cycle.ppt
4/32
Mrs G
Business Cycle & Long term trends
http://www.tutor2u.net/http://www.tutor2u.net/ -
7/18/2019 economic cycle.ppt
5/32
Mrs G
efinition of Business Cycle
According toJ.A.Estay:
#Business cycles are fluctuation in $eneral businessactivity that appear throu$h the inter%related of
many specific cycles&'
According to Prof. Kenynes:
Trade ycle is composed of periods of $ood tradecharacteried by risin$ price and lo" unemployment
percenta$e alterin$ "ith periods of bad trade
characteried by fallin$ price and hi$h
unemployment percenta$e&'
In Simple words:
#Business ycle is a fluctuation of the economy
characteried by periods of prosperity follo"ed by
periods of depression&'
http://www.tutor2u.net/http://www.tutor2u.net/ -
7/18/2019 economic cycle.ppt
6/32
Mrs G
!ccor"ing to #ose$h Business Cycle has % ste$s&&&
BOO*+Expansion+rosperity- #The peak activity level of business or economy is
called Boom&'
.ecession-
#The rapid decrease in the business activity levelis called .ecession&'
/epression+ontraction-
#The lo"est sta$e+level of business or economic
activity is called depression&' .ecovery+.evival-
#The $radual increase in business activity is called
.evival&'
http://www.tutor2u.net/http://www.tutor2u.net/ -
7/18/2019 economic cycle.ppt
7/32Mrs G
Phases of Business Cycle'
http://www.tutor2u.net/http://www.tutor2u.net/ -
7/18/2019 economic cycle.ppt
8/32Mrs G
(ey Conce$ts ) *&&P
*ross omestic Pro"uct'
0 The value of output of $oods and services produced in thecountry durin$ one year
0 Includes all rimary, secondary and tertiary sectors
0 an be vie"ed as bein$ national income, national output
or a$$re$ate demand (1/)
0 2/ per capita 0 2/ divided by the population (2/ per
head)
1ll countries experience economic cycles
"ith their 2&/&
http://www.tutor2u.net/http://www.tutor2u.net/ -
7/18/2019 economic cycle.ppt
9/32Mrs G
Characteristics of an Economic Boom
3tron$ and risin$ level of1/ Often driven by fast$ro"th of consumption
.isin$ employmentand real "a$es
!i$h demandfor imported $oods 4 services 2overnment tax revenues "ill be risin$
5uickly
ompany profitsand investmentincrease
Increased utilisationrate of existin$
resources
http://www.tutor2u.net/http://www.tutor2u.net/ -
7/18/2019 economic cycle.ppt
10/32Mrs G
Business an" a Boom+
1 boom occurs "hen national output is
risin$ at a rate faster than the trend rate of$ro"th6i&e& faster than 2ovt expects7
It is characterised by !I2! consumerspendin$, hi$h business confidence,
investments and profits7
There is a lot more output&
http://www.tutor2u.net/http://www.tutor2u.net/ -
7/18/2019 economic cycle.ppt
11/32Mrs G
,n a boom- what ha$$ens to &
2ro"th8
onsumer spendin$8
Employment8
Business confidence8 9ould you I:;E3T
or rationalise in a Boom8 onsumer confidence8 9ould you spend,
invest or borro" in a boom8
Can youeplain w!y"
http://www.tutor2u.net/http://www.tutor2u.net/ -
7/18/2019 economic cycle.ppt
12/32Mrs G
Characteristics of an Economic .ecession
/eclinin$ a$$re$ate demandfor a economy
output ontractin$ employment+ risin$
unemployment
3harp fall in business confidence 4 profits /ecrease in fixed capitalinvestment
spendin$
.educed inflationarypressure
-
7/18/2019 economic cycle.ppt
13/32Mrs G
.ecession
In a recession "hat happens to
2ro"th8
onsumer spendin$8
Employment8 Business confidence8
9ould you I:;E3T or rationalise in a
do"nturn+slump8 onsumer confidence8
9ould you spend, invest or borro" in a
do"nturn+slump8
http://www.tutor2u.net/http://www.tutor2u.net/ -
7/18/2019 economic cycle.ppt
14/32Mrs G
Therecessionof the early 1990s
http://www.tutor2u.net/http://www.tutor2u.net/ -
7/18/2019 economic cycle.ppt
15/32Mrs G
e$ression&&&
9hen there is a continuous decrease of
output , income , employment , prices4profits , there is a fall in the livin$ standard
of people n depression sets in&
1 phase of the business cycle in "hich the
economy as a "hole is in decline& *ore
specifically, contraction occurs after the
business cycle peaks, but before it becomes
a trou$h& 1ccordin$ to most economists, acontraction is said to occur "hen a country>s
real 2/ has declined for t"o or more
consecutive 5uarters&
http://www.tutor2u.net/http://www.tutor2u.net/ -
7/18/2019 economic cycle.ppt
16/32Mrs G
Characteristics of e$ression&&&
-
7/18/2019 economic cycle.ppt
17/32Mrs G
.eco/ery&&&
The turnin$ point from depression to
expansion is termed as recovery& In the revival sta$e of the business cycle,
consumers start to feel more confident that
the "orst is behind them and they start to
spend a$ain& Economic indicators like the
2/ start to move hi$her after lon$ periods
of decline, employment numbers start to
look $ood a$ain, some businesses start tospend more money a$ain&
http://www.tutor2u.net/http://www.tutor2u.net/ -
7/18/2019 economic cycle.ppt
18/32Mrs G
Characteristics of .eco/ery or .e/i/al&&
There are expansion4 rise in economic
activities& /emandrise increases in production4
investment&
3teady rise in Output , Income, Employment, price 4 rofit&
1/increases&
The banksexpand redits&
http://www.tutor2u.net/http://www.tutor2u.net/ -
7/18/2019 economic cycle.ppt
19/32
Mrs G
arious Theories1f Business Cycles'
1/er,n/estment Theory
,nno/ation Theory
(eynes3s Theory
http://www.tutor2u.net/http://www.tutor2u.net/ -
7/18/2019 economic cycle.ppt
20/32
Mrs G
1/er,n/estment Theory&&&
The economy comes out of its do"ns"in$
as income increases and people revert toearlier consumption and expenditure levels&
This helps economy to recover and the
ups"in$ starts a$ain& This theory says that
the over investment due to forced savin$ bypeople in inflation is the cause of
fluctuations in economic activities& !ayek
says, voluntary savin$ leads to chan$e in
structure of production permanently but
forced savin$ brin$s chan$es "hich are not
permanent
http://www.tutor2u.net/http://www.tutor2u.net/ -
7/18/2019 economic cycle.ppt
21/32
Mrs G
,nno/ation Theory&&&
?oseph 3chumpeter has explained the
expansion and contraction throu$h industrialinnovation& In this theory, 3chumpeter says,
any innovation can move the economy to
dise5uilibrium from e5uilibrium and this "ill
continue till the ne" e5uilibrium position isreached&
http://www.tutor2u.net/http://www.tutor2u.net/ -
7/18/2019 economic cycle.ppt
22/32
Mrs G
(eynes theory&&
1ccordin$ to keynes in the short run, the
level of income, output and employment isdetermined by the level of a$$re$ate
effective demand& 1$$re$ate demand is
composed of demand for consumption
$oods and demand for investment $oods&?&*& @eynes is of the vie" that it is the
chan$es in the level of a$$re$ate demand
"hich brin$ about fluctuations in the level of
income output and employment&
http://www.tutor2u.net/http://www.tutor2u.net/ -
7/18/2019 economic cycle.ppt
23/32
Mrs G
Characteristics 1f Business Cycle'
A&
-
7/18/2019 economic cycle.ppt
24/32
Mrs G
Causes of the Business cycle fluctuations
han$es in business confidence&
1lternatin$ periods of stockin$ 4 de%
stockin$&
han$es in the amount of spendin$ on
lar$e consumer items&
han$es in $ovt policy&
http://www.tutor2u.net/http://www.tutor2u.net/ -
7/18/2019 economic cycle.ppt
25/32
Mrs G
ProhibitiveMeasures
CurativeMeasures
4easures to Control Business cycle'
http://www.tutor2u.net/http://www.tutor2u.net/ -
7/18/2019 economic cycle.ppt
26/32
Mrs G
4easures to Control Business cycle'
5cont3"
rohibitive*easures-
In prohibitive *easures, it is tried to not
start a Business ycle& It means to takesome initial measures so that the business
cycle could not start, and economy could
not affect from its dan$erous effects
http://www.tutor2u.net/http://www.tutor2u.net/ -
7/18/2019 economic cycle.ppt
27/32
Mrs G
4easures to Control Business cycle'
urative*easures-
7&8iscalPolicy'
2&4onetaryPolicy'
9& ,nternationalTheory'
http://www.tutor2u.net/http://www.tutor2u.net/ -
7/18/2019 economic cycle.ppt
28/32
Mrs G
8iscal Policy'
-
7/18/2019 economic cycle.ppt
29/32
Mrs G
4onetory Policy'
The actions of a central bank, currency
board or other re$ulatory committee thatdetermine the sie and rate of $ro"th of the
money supply, "hich in turn affects interest
rates&
*onetary policy is maintained throu$h
actions such as increasin$ the interest rate,
or chan$in$ the amount of money banks
need to keep in the vault (bank reserves)&
http://www.tutor2u.net/http://www.tutor2u.net/ -
7/18/2019 economic cycle.ppt
30/32
Mrs G
,nternationalTheory'
/ifferent measures have been su$$ested
by the economists to control the businessfluctuations effectively& 3uch as-
(a)& ontrol of international production&
(b)& International bill stock control and
international investment control&
http://www.tutor2u.net/http://www.tutor2u.net/ -
7/18/2019 economic cycle.ppt
31/32
Mrs G
:uic; :uestions
9hat sta$e of the business cycle do you
think the akistani Economy is in no"8
!o" is the business cycle measured8
9hy does Investment fluctuate more than
consumption in the business cycle8
9hat "ays mi$ht a business benefit from
a recession8
http://www.tutor2u.net/http://www.tutor2u.net/ -
7/18/2019 economic cycle.ppt
32/32
#$A%K &'( So)(C$
http://www.tutor2u.net/