ECONOMIC

FLUCTUATIONS

Presented by :Manoj Kumar, Bharti,

Nivedita,Himanshu, Gaurav Jain

A business cycle can be

defined as wavelike
fluctuations of business
activity characterized by
recurring phases of
expansion and contraction
in periods varying from
three to four years.

Characteristics
It is a wave like movement.
It is synchronic in nature.
Recurring fluctuations.
Period of business cycle is

longer than a year.

Presence of alternative forces of
contraction and expansion.

CAUSES OF BUSINESS
CYCLE
.

Volatility of investment spending.

Fluctuations in government

spending .
Technological innovations.
Variations in inventories.

Phases of Business Cycle

Peak
Prosperity

Recessi
on

Recovery

Depression
Trough

PROSPERITY
Upswing stage/ Expansion

Expectation of rising profits.

Demand for raw materials increases.

More employment.

Earning power increased.

Demand for consumption of goods increases.

Modest increase in price level.

Marginal increase in profit .

Expansion reaching its height

(PEAK):
Profit increasing rapidly
Rising share prices and confidence in

prospects of business induce banks to

expand credit facilitiesresulting in
increased investments.
Demand for consumption goods increases .
Increase in costs.
Piling of inventories .
Production activity much faster than
consumption.-----leading to end of phase of
prosperity.

End of expansion
Or beginning of recession---due to narrowing

down of gap b/w cost of production and the

price of goods.

Recession
Gradually crash of stock market caused by the

realization that profits can no longer be

maintained.
Dramatic fall in production of capital goods.
Demand for consumption goods fall.
Distortion in cost structure (as cost does not
fall in the same proportion as the price.)
Abandonment of investment programmes.
Failure of some small business create panic.
Employment suffers.

Depression
Growth rate enter into negative phase.
Notable fall in production and mass

unemployment.
Substantial reduction in income of the people
and demand of consumer goods.
Price level fall to a greater extent gradually.
Contraction of credit.
All the economic activities touch the bottom
this is called trough.

Recovery
Is Gradual..
Prices stop falling.
Investors & Producers starts gaining

confidence.
Demand for durable goods cannot be
postponed indefinitely.
Firms start utilizing idle capacity.
Slow rise in prices accompanied by small rise
in profit.

..To be continued
Government take initiative to build up the lost

economic activity.
New investment takes place in capital goods
industries.
The volume of employment also stately
increases.

Table 1:Expansions and Recessions

in Last 50 Years

Table 2:Expansions and Recessions

in Last 50 Years

Thank
you