MACROECONOMICS

Lecture 12: Business Cycles

TOPICS TO BE DISCUSSED

1. Business Cycles
Meaning

 Phases of Business Cycles

 Recession Vs Depression

1
Performance of an Economy

 Is the Economy Doing Well or Not?

 How to Measure the Performance?
BUSINESS CYCLE

Business Cycle shows the direction in which an economy is moving

Business cycles are usually measured by the growth rate of real Gross
Domestic Product

Business cycles are actually the upward and downward movements of

real GDP in the economy
PHASES OF THE BUSINESS CYCLE

Expansion (Increasing GDP)

Peak/Boom (Top)
 Recession (Contraction)
Trough (Bottom)
PHASES OF BUSINESS CYCLE

Peak Peak

Trough
PERIOD OF EXPANSION

High demand for goods

More production

Increased employment & low unemployment

Wages & salaries increase

More income

People are optimistic and spending money

Businesses flourish as its easy to get bank loan

Businesses make profits and stock prices increase

PEAK

The economy stops growing (reached the top)

GDP reaches maximum

Businesses can’t produce any more or hire more people

Cycle begins to contract

CONTRACTION

Known as recession

Businesses reduce production

Businesses layoff people

Unemployment increases

Low income

Number of jobs decline

People are pessimistic & stop spending money

Banks stop lending money

TROUGH

All economic activities are at the lowest

High unemployment and low spending Peak

No demand

Less production

Very low income

Stock prices drop

But, when we hit bottom, no where to go but

up!
Trough
RECESSION & DEPRESSION

A prolonged contraction is called a recession (contraction for over 6

months)

A recession of more than one year is called as depression

SUMMARY

Business cycles show the progress of an economy

It shows the expansion and contraction of an economy

lowest point of contraction shows the path to recovery

If slowdown in an economy persists for more than one year, it is called
depression

Corrective measures are to be taken by the Government through strong

macroeconomic policy framework
THANK YOU 