Fluctuations+ +Main

8/4/2019 Fluctuations+ +Main

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Presented by :- Manoj Kumar, Bharti,Nivedita,Himanshu, Gaurav Jain



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.



� 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.



.

� Volatility of investment spending.� Fluctuations in government

spending .� Technological innovations.� Variations in inventories.



Phases of Business Cycle

Prosperity Recession

Depression Recovery

Peak

Trough



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 .



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.



End of expansiony Or beginning of recession---due to narrowing down of

gap b/w cost of production and the price of goods.



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.



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.



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.



..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.



Table 1:Expansions and Recessions in Last

50 Years



Table 2:Expansions and Recessions in Last

50 Years

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