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Business Cycle Economics

The document discusses the Hicks-Samuelson theory of business cycles. It defines a business cycle as the natural expansion and contraction of economic growth over time, measured by changes in a country's GDP. The business cycle has five stages: expansion, peak, contraction consisting of recession and depression, trough, and recovery. The stages involve fluctuations in economic indicators like income, employment, demand, and investment as the cycle progresses from growth to decline and back to growth.

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Ritvik Anuraag Janarajupalli
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112 views2 pages

Business Cycle Economics

The document discusses the Hicks-Samuelson theory of business cycles. It defines a business cycle as the natural expansion and contraction of economic growth over time, measured by changes in a country's GDP. The business cycle has five stages: expansion, peak, contraction consisting of recession and depression, trough, and recovery. The stages involve fluctuations in economic indicators like income, employment, demand, and investment as the cycle progresses from growth to decline and back to growth.

Uploaded by

Ritvik Anuraag Janarajupalli
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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BUSINESS CYCLES- HICKS & SAMULESON THEORY

What Is a Business Cycle?

• A business cycle is the natural expansion and contraction of economic


growth that occurs in a country over a span of time.
• It is also known as an economic cycle or a trade cycle. It begins and ends
with the rise and fall of a country's gross domestic product (GDP).
• A trade cycle can also determine the rise and fall of economic activity
and stock prices.

Stages Of a Business Cycle

• Business cycles might be as short as a few days or as long as a few years.


The time it takes to complete all five stages of a trade cycle becomes the
trade cycle's duration. The five stages of a trade cycle are as follows:
Expansion-

• The expansion stage is always the first stage of a trade cycle. There may
be positive economic indicators at this stage, including income,
employment, demand, supply and profit growth.
• The frequency of investments increases as a company grows, and both
corporations and individuals repay their loans on time.
Peak-

• The trade cycle reaches its peak when the economy becomes saturated
and upward expansion can no longer persist. Wages, employment rates
and the cost of products and services have reached their maximum levels
at this stage.
• These economic indicators can reach a point where they may not increase
further. In anticipation of a drop-in economic activity, many businesses
and people can review their budgets at this stage.
Contraction-

• Economic growth patterns may reverse as the economy contracts at the


end of the peak stage. There are two separate stages of contraction.
Recession-
• When the expansion phase of the economy finishes and economic activity
falls, the recession stage begins. It lasts until the GDP reaches the starting
point of the expansion stage.
• Demand may fall almost immediately during a recession, but producers
may not adjust their output until the market supply is high. At this
moment, positive economic factors like prices and salaries may collapse.
Depression-

• When GDP falls below the pre-expansion level or the steady growth line,
the depression stage begins.
• Unemployment rates may skyrocket during a depression, while economic
development slows down frequently.
• A depression lasts until the economy can no longer fall any lower.
Trough-

• A trade cycle enters the trough stage when the depression stage reaches
its lowest point.
• The country may experience negative economic growth during this time.
Supply and demand may become as low as possible.
Recovery-

• The recovery stage begins when the economy's GDP reaches its lowest
point in the cycle. The economy may rebound and reverse unfavourable
trends at this point.
• When demand rises, so does supply. Investments may eventually resume,
and employment and output can increase. The recovery period lasts until
the economy's growth rate recovers to a more consistent level.
• The current trade cycle ends as it reaches this point, and a new one begins
as it enters the expansion stage.

NOTE: Refer notes for the calculation part

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