Business Cycle Business Cycle

Phases of Business Cycle

(Graph)
Explanation
Contraction
Causes of Recession
Causes of Depression
Causes of Recovery
Causes of Boom
A good cycle
A bad cycle
Prepared by: Asif Z. Warsi
Assignment
 Business Cycle
Student Names:
1) Asif Z. Warsi - 270579
2) XYZ
3) ABC
4) AZW

Prepared by: Asif Z. Warsi

 Business Cycle

Definition
The business cycle 
shows fluctuations in an economy,
that is, how ups and down occur.

A business cycle has various phases in which

an economy moves.
 Business Cycle
Definition
Economic growth occurs when there is an increase
in
the level of economic activity in a country over
time.

The term Business Cycle or Economic Cycle

(also known as the trade cycle)
describes the fluctuations in economic activity in
a country over time. These fluctuations create
a long-term trend of growth in the economy,
as shown in next slides.
 Explanation of Phases of
business cycle
1. Expansion - Recovery
When the level of GDP rises, thus recovering from a
slump.
(Investment, Unemployment, Consumption, Export).
When
this recovery expand for two consecutive quarters,
usually
cross the trend line (towards potential), boom starts.

2. Expansion - Boom (Peak)

When the economy reached the optimal level,
unemployment is very low, while business confidence
 Explanation of Phases of
business cycle
3. Contraction – Recession:
Under recession, fall in GDP, (1: Investment, 2:
Unemployment, 3: Consumption, 4: Export, 5: Business
confidence).

4. Contraction – Depression:
In the period of depression, the growth rate of an
economy
falls, (1: Investment, 2: Unemployment, 3:
Consumption,
4: Export, 5: Business confidence). Question?
 Explanation of Phases of
business cycle
5. Trough (slump)
Trough is the end of the depression period in an
economy. After depression, a country moves to
recovery.
1: Low Investment, 2: High Unemployment,
3: Low Consumption, 4: Low Export,
5: Very low Business confidence.

1. Expansion – Recovery (again)

 Causes of Recession

Demand (AD) Unemploymen

Consumption t Recession

Production (AS) FED fund Rates (Fall)

Exports
Investment Fall

Govt. Bonds (Buy)

Interest Rate Discourage
(Commercial Investment
Banks) Money Supply (Rise)
Causes of Recession
 A Good Cycle

More Spending

More goods
produced
More employment
opportunities
 A Bad Cycle

Fewer Spending Lesser goods

produced

Less job opportunities

“Assignment”
 What is Contraction and Expansion in Business Cycle?

Answer:

• Contraction

• Expansion
 What is the difference between long-term trend and
potential output?

Answer:
• Long-term trend

• Potential Output
 What do you think during recovery (growth), economy
can exceeds its potential output in short-run?

Answer:
• Yes or No: ???

• Reason in just few line

(defend your answer)
 What do you think during recovery (growth), economy
can exceeds its potential output in long-run?

Answer:
• Yes or No: ???

• Reason in just few line

(defend your answer)
 What do you think business cycle should be defined with the help of
potential output or through trend line?

Answer:
1. Both are correct or just one?

2. If you think both are correct then what is a difference?

OR

3. If you think one is correct? Which one you think is correct &
why?
 Causes of Depression (fill the
boxes)
Depression

FED fund Rates (?)

Govt. Bonds (?)

Money Supply (?)

Causes of Depression
 Causes of Recovery (fill the
boxes)
Recovery

FED fund Rates (?)

Govt. Bonds (?)

Money Supply (?)

Causes of Recovery
 Causes of Boom (fill the
boxes)
Boom

FED fund Rates (?)

Govt. Bonds (?)

Money Supply (?)

Causes of Boom