Professional Documents
Culture Documents
or
The Economic Cycle
Marallag, Ellaine
Paderanga, Franzel
San Diego, Jann Kyle
Theories of Business/Exonomic
Cycle
Keynesian Theory
Fluctuations inaggregate demand
cause the economy to come to short
run equilibrium at levels that are
different from the full employment
rate of output. These fluctuations
express themselves as the observed
?
business cycles.
The business cycle is the periodic but irregular up-anddown movements in economic activity, measured by
fluctuations in Real GDP and other macroeconomic
variables.
Business/Economic Cycle
Business Cycle
Growth
/
ssion
Rece action
r
C ont
Reco
v
Expa ery/
nsion
Business
Activities
Depression/Trough
/Slump
Time
PHASES OF BUSINESS
CYCLE
Peak
Re
ce
ss
on
i
s
n
pa
x
ERIT
E
P
S
PRO
Y
IT
R
E
P
S
PRO
Y
io
n
Line of cycle
Ex
pa
ns
Recov
ery
io
n
DEPRESSIO
N
Trough
Boom/Prosperity
The
PEAK
Recession
During recessions, many macro economic
indicators vary in a similar way.
Production, as measured by gross domestic
product (GDP), employment, investment
spending, capacity utilisation, household
incomes, business profits, and inflation all
fall
while bankruptcies and the unemployment
rate rise.
Decrease in spending by
consumers due to lack of
faith in the economy
Downward slide in
growth rate becomes
rapid and steady
RECESSIO
N
Output, employment,
prices etc. register a
rapid decline
When the growth rate
goes below the steady
growth rate depression
sets in
Depression/Trough
DEPRESSIO
N/TROUGH
Total output,
employment, prices, bank
advances etc. Decline
during subsequent period
Depression lasts as long
as growth rate stays
below the stagnated
growth rate
TROUGH
Recovery
The
Increase in
Output
Employment
Investment
RECOVERY
&
EXPANSION
Aggregate
demand
Bank credits
Wholesale &
Retail prices
Per capita output
Standard of living
RECOVERY &
EXPANSION
Growth
/
ssion
Rece action
r
C ont
Reco
v
Expa ery/
nsion
Business
Activities
Depression/Trough
/Slump
Time
Government Policies
The government has introduced economic
reforms or measures to reduce the problems of
inflation and unemployment and these have been
planned for economic recovery. Some of these
measures have been:
To increase the production of short-gestation
crops and other small-scale industries.
To reduce over-supply of money.
Government Policies
To reduce government expenditures through more
economical use of its resources.
To concentrate more on the development of less
expensive agricultural projects and have shorter
gestation than industrial projects.
Government Policies