BUSINESS

CYCLE
Presented By-
Shubham Rathi,
Shivendra Pandey,
& Somdev Shahi
 Business cycle
 The business cycle is the short run
alternation between economic
downturn & economic upturn.
 The term business cycle (or trade
cycle)refers to the fluctuations
economic activity that occur in a more
or less regular time sequence in all
capitalist.
 Definition-Alternating increase and
decreases in the level of business
activity.
 How do we measure increase and
decrease in business activity?
 Fluctuations of
Business Cycle-
 Secular Trends;
 Seasonal Variations;
 Cyclical Fluctuations;
 Miscellaneous Random
Fluctuations.
 Phases of
business cycle
-
1.Prosperity or
Expansion
2.Recession
3.Depression
4.Recovery

Phases Of Business Cycle:
 How are recession &
expansions define?
 There is no exact definition!
 In many countries, economists adopt the
rule that a recession is a period of at least
6 months or two consecutive quarters,
during which aggregate output falls.
 In the united states, the task of determining
when a recession begins and ends in
assigned to an independent panel of
experts at the NBER. This panel looks at a
number of economic indicators, with the
main focus on employment and
production.
 Recession dates from peak of
business.
Causes of Business Cycle-
Ø Banking operations;
Ø Proportion between capital goods and
consumer goods;
Ø Purchasing power;
Ø Profit mania;
Ø Human psychology;
Ø Cyclical changes in weather.
Theories Of Business Cycle:
 Sunspot or Climatic Theory;
 Psychological Theory;

 Hayek’s Monetary Over-

investment Theory;
 Under Consumption Theory;

 Hawtrey’s Monetary Theory;

 Innovation Theory.


v Sunspot or Climatic Theory:

 Oldest theory of Business Cycle,

 Asssociated with William

Herschel & Stenley Jevors.

 This theory mainly shows

relation between
Sunspot,Climate & Agriculture
crops which will results in
Depression or Prosperity
phase.
vPsychological Theory:
 Developed by Pigou.
 According to this theory,the

main reason for trade cycle is

over-optimist and over-
pessimist among business
people.
 Thus fluctuations are due to

optimist leading to prosperity

and pessimism resulting in
 vHayek’s monetary over-
investment theory:
 Natural rate of intt is that rate at
which the demand of loanable
funds equals the supply of
voluntary savings.
 Market rate of inttis the money
rate which prevails in the market
and is determined by the demand
and supply of money.
 Natural ROI <Market
ROI=Depression
 vHawtrey’s Monetary
Theory:
 According to Prof.
R.G.Hawtrey,the business
cycle is purely monetary
phenomenon. He opines that
non monetary factors like
strikes,floods,earthquakes,dra
ught,wars etc. may be best
cause a partial depression,but
not a general depression.

 Innovation Theory:
 Given by Joseph Schumpeter.
 Schumpeter clarifies that innovations are
not inventions. This is why inventions
do not cause business cycle,but
innovation do:
q Innovation may consist of:
1. Introduction of a new product,
2. Introduction of a new method,
3. Introduction or opening of a new market,
4. A new source of raw material,or
5. A new form of business organization.

THANK YOU....
