Business Cycles

A Presentation on Different phase of
Business Cycle

Business Cycles

√ The term business cycle refers to the recurrent ups and downs in the level of economic activity, which extend over several years.
√ Individual business cycles may vary greatly in duration and intensity. √ All display a set of phases.

THE BUSINESS CYCLE
Phases of the Business Cycle
RECESSION

TROUGH

RECOVERY

Level of business activity

PEAK

Time

Level of business activity

PEAK
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√ Peak or prosperity phase:
 Real output in the economy is at a high level
 Employment is high
 Domestic output may be at its capacity
 Inflation may be high.
 High level of effective demand.
 Rising interest rates

Level of business activity

RECESSION

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√ Contraction or recession phase:
 Real output is decreasing
 Unemployment rate is rising.
As contraction continues, inflation pressure fades.
 If the recession is prolonged, price may decline (deflation)
The government determinant for a recession is two consecutive quarters of declining output.

Level of business activity

TROUGH
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√ Trough or depression phase:
 Lowest point of real GDP
 Output and employment “bottom out”
 This phase may be short­lived or prolonged
 There is no precise decline in output at which a serious recession becomes a depression.

Level of business activity

RECOVERY
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√ Expansionary or recovery:
 Real output in the economy is increasing
 Unemployment rate is declining
 The upswing part of the cycle.

Causes of Fluctuations
Innovation

Political events
Random events
Wars
Level of consumer spending
Seasonal fluctuations
Cyclical Impacts — durable and non durable

Thanks to all