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Macro Economics PPT Notes Part 5

The document discusses the concept of a business cycle which describes the expansion and contraction of economic activity over time. It outlines the six phases of a business cycle: expansion, peak, recession, depression, trough, and recovery.

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Romeo FF YT
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51 views6 pages

Macro Economics PPT Notes Part 5

The document discusses the concept of a business cycle which describes the expansion and contraction of economic activity over time. It outlines the six phases of a business cycle: expansion, peak, recession, depression, trough, and recovery.

Uploaded by

Romeo FF YT
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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MODULE: TOPIC OF

4 DISCUSSION :
CONCEPT OF
BUSINESS
CYCLE

MANAGERIAL
ECONOMICS MR. SIBABRATA ROY
CONCEPT OF BUSINESS CYCLE

A business cycle is a cycle of fluctuations in the Gross Domestic Product


(GDP) around its long-term natural growth rate. It explains the
expansion and contraction in economic activity that an economy
experiences over time.
PHASES OF BUSINESS CYCLE

1. Expansion - The first stage in the business cycle is expansion. In this stage, there is an
increase in positive economic indicators such as employment, income, output, wages, profits,
demand, and supply of goods and services.
2. Peak - The economy then reaches a saturation point, or peak, which is the second stage of
the business cycle. The maximum limit of growth is attained. The economic indicators do not
grow further and are at their highest. Prices are at their peak. This stage marks the reversal
point in the trend of economic growth. Consumers tend to restructure their budgets at this
point.
3. Recession - The recession is the stage that follows the peak phase. The demand for goods
and services starts declining rapidly and steadily in this phase. Producers do not notice the
decrease in demand instantly and go on producing, which creates a situation of excess supply
in the market. Prices tend to fall. All positive economic indicators such as income, output,
wages, etc., consequently start to fall.
4. Depression - There is a commensurate rise in unemployment. The growth in the
economy continues to decline, and as this falls below the steady growth line, the
stage is called depression.
5. Trough - In the depression stage, the economy’s growth rate becomes negative.
There is further decline until the prices of factors, as well as the demand and supply
of goods and services, reach their lowest point. The economy eventually reaches the
trough. It is the negative saturation point for an economy. There is extensive
depletion of national income and expenditure.
6. Recovery - After this stage, the economy comes to the stage of recovery. In this
phase, there is a turnaround from the trough and the economy starts recovering from
the negative growth rate. Demand starts to pick up due to the lowest prices and,
consequently, supply starts reacting, too. The economy develops a positive attitude
towards investment and employment and production starts increasing.
DIAGRAM OF BUSINESS CYCLE

5
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