Business Cycles and Inflation

Chapter 13
 Business Cycles and Inflation

• Economic Cycles and Inflation is the

downward and upward movement of gross
domestic product (GDP) this describes the rise
and fall in production output of the goods and
also services in an economy. Business cycles
are generally measured using the rise and fall
in the real gross domestic product (GDP) or
the adjusted for inflation.
 The Nature of Business Cycles
The business cycle is the natural expansion and
contraction of the production and output of goods
and services that happen over a period of time. There
is no perfect in business, no business in economy has
straight trajectory, they all have many trials to achieve
expansion, the environment of economy are very
dynamic and it has a significant effect on the business
firm.
• One thing to understand that business cycles
are natural phenomenon that occurs over time.
The nature of business they are not constant,
sometimes the experience up and down cycles.
 Phases of the business cycles

The business consists of the following phase:

• The prosperity phase
• The crisis (or recession) phase
• The depression phase
• The recovery (or expansion) phase.
• The prosperity Phase
• Is characterized by increased output, employment,
investment, profits, sales, wholesale and retail prices
and rise in the standard living.
• The crisis phase

• In economic (recession) in business, this is the

significant decline in the activity across the economy
that lasting but sudden result are not consistent in
the business. this is a significant decline in economic
activity and spread across the economy.
• The depression phase
• In economics a depression is sustained, long term
in economic cycles. This is the critical fearful stage
of trade cycle. Most firms reduce their output and
such are forced to lay-off workers. As
unemployment increase, the wages tend to fall
under its pressure.
• This is because the producers are not prepared to
lift off the supplies of the raw materials which
causes a sharper fall in their prices than the prices
of manufactures.
•  
• The recovery (or expansion) phase
• This is the time when the economy becomes
stronger and there is an good output, more jobs
and more services are supplied by business.
Unemployment begins to fall and they start
business to increase.
• The depression phase cannot continue indefinitely.
As the prices of the various economic resources
are low, some business firms are attempt to
operate again but the reduced now their output
and make it normal in their production. As this
happen, the following will be noted.
• As the supply of commodities in the market gets
exhausted, demand for these begin to be felt;
• Optimism among businessmen slowly
• The demand for labor increases, resulting to a decrease
in unemployment.
• The purchasing power of the people rises;
• The low rates of interest will attract business
borrowings;
• Prices slow rises;
• There is an increase in production output;
• Ile plants are used and plans for construction of new
ones are considered.
 
Thank You