Week 7-8:BUSINESS CYCLE

Learning outcomes
What will you learn about in this topic?

Explain the time series composition

Phenomenon of the business cycle

Reasons for the business cycle

Effects of the business cycle

BUSINESS CYCLE

A business cycle can be illustrated using a graph that shows

the amount of the economic activity(GDP) each year for a period
of years.

A business cycle is basically defined in terms of periods of

expansion or recession.

Business cycle Cont

TYPICAL BUSINESS CYCLE

Business circle cont

The amount, or level, of output is shown on the vertical axis.it is
clear from the graph that the business cycle follows a pattern. The
output rises and falls over time.
The high point of the cycle are called the peaks. These are the
maximum levels of economic activity reached at a specific time.
The lowest points are called the roughs. These are minimum levels
of economic activity reached at a specific time. The period (or
length0 of a business cycle is the number of years it takes the
economy to get from peak to peak or from trough to trough.

Business cycle Cont

Phenomenon of the business

cycle
INDICATORS OF ECONOMIC ACTIVITY
The business cycle shows us what is happening to a countrys
output over time. South African reserve bank has developed
economic indicators that provide answers to these question

Leading indicators-tells us where the economy is going.

Coincident indicators-change at the same time as the quantity

of output changes. Changes in the indicators tell us what is
happening to the quantity of output produced by the economy at
present.

Lagging indicators-shows where the economy has been


REASONS FOR BUSINESS
Reason can be caused by an exogenous or endogenous variable
CYCLE
Business cycle Cont

Exogenous variable is one that acts on a system from the outside

Endogenous is one that works from inside the system.

Thank you