BRIHAN MAHARASHTRA COLLEGE OF COMMERCE PUNE

SUBJECT : ECONOMICS ECONOMIC PROJECT [S.Y.B.COM ]

TOPIC : STUDY OF TRENDS OF BUSINESS CYCLES

NAME OF GROUP MEMBERS ROLL NO DIVISION

Sakshi Chaturvedi 453 D

Abhay Kalaskar 371 D

Yash Bansode 338 D

SUBJECT TEACHER NAME PROF. VIDUSHI TEWARI

DATE OF SUBMISSION : 10-3-2022

YEAR OF SUMISSION : 2021-22

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 INDEX .
Sr . no particulars
page no.
1 introduction
2 which model is used to study business cycles
3 how do economists measure business cycle
4 why do we study the business cycles
5 what are the 4 stages of business cycles
6 what are the 5 phase of the business cycles
7 conclusion

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INTRODUCTION
A business cycle is the periodic growth and decline of a nation's economy, measured mainly by its
GDP. Governments try to manage business cycles by spending, raising or lowering taxes, and adjusting
interest rates. Business cycles can affect individuals in a number of ways, from job-hunting to investing.

Business cycles are identified as having four distinct phases: peak, trough, contraction, and
expansion. Business cycle fluctuations occur around a long-term growth trend and are usually
measured by considering the growth rate of real gross domestic product.

What is the introduction of business cycle?

A business cycle is the periodic growth and decline of a nation's economy, measured mainly
by its GDP. Governments try to manage business cycles by spending, raising or lowering taxes,
and adjusting interest rates. Business cycles can affect individuals in a number of ways, from
job-hunting to invest

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how to do economists measure business cycles

A business cycle, sometimes called a "trade cycle" or "economic cycle," refers to a series of stages in the
economy as it expands and contracts. Constantly repeating, it is primarily measured by the rise and fall
of gross domestic product (GDP) in a country.

How is the business cycle usually measured?

Business cycles are identified as having four distinct phases: peak, trough, contraction, and
expansion. Business cycle fluctuations occur around a long-term growth trend and are usually
measured by considering the growth rate of real gross domestic product.

How do economist measure the economy?

The size of a nation's overall economy is typically measured by its gross domestic product, or
GDP, which is the value of all final goods and services produced within a country in a given
year.

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 3 which model is to used to study business
cycles
. Aggregate demand-aggregate supply

How do economists measure business cycles?

Typically business cycles are measured by applying a band pass filter to a broad economic
indicator such as Real Gross Domestic Production. Here important problems may arise with a
commonly used filter called the "ideal filter".

Tracking the cycle helps professionals forecast the direction of the economy. The National Bureau of
Economic Research makes official declarations about the economic cycle based on specific factors,
including the growth of the gross domestic product, household income, and employment rates.

What is a business cycle expansion?

expansion, in economics, an upward trend in the business cycle, characterized by an
increase in production and employment, which in turn causes an increase in the incomes
and spending of households and businesses.

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4 why do we study the business cycles

Understanding business cycles allows owners to make informed business decisions. By keeping a

finger on the economy's pulse and paying attention to current economic projections, they can speculate
when to prepare for a contraction and take advantage of the expansion.

Knowing how to read whether the economy is in expansion or hitting its peak can set the stage
for how a business withstands the contraction.

Suppose experts speculate an incoming contraction or even recession. In that

case, Forbes suggests that businesses can safeguard their assets by diversifying revenue,
reducing expenses, creating and feeding an emergency fund, keeping inventory low and
managing debt. By taking the proper measures in anticipation of a downturn, you are
increasing your business’s longevity. In the case of a recession, it may be your only shot at
survival.

It’s also important to understand how business cycles affect various sectors of the economy,
which is relevant for making investment decisions for both personal and business matters.  Wall
Strategies notes that technology, consumer discretionary and financial stocks are sensitive to
the business cycles. For example, technology stocks do well during expansion but decline
quickly during contraction.

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what are the 4 stages of business cycles

The four stages of the cycle are expansion, peak, recession , and depression. Factors such as GDP,
interest rates, total employment, and consumer spending, can help determine the current stage of the
economic 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. Debtors are generally paying their debts
on time, the velocity of the money supply is high, and investment is high. This process
continues as long as economic conditions are favorable for expansion.

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.

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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 a
depression.

5 Phases of a Business Cycle (With

Diagram)

Business cycles are characterized by boom in one period and collapse in the
subsequent period in the economic activities of a country.

These fluctuations in the economic activities are termed as phases of business

cycles.

The fluctuations are compared with ebb and flow. The upward and downward
fluctuations in the cumulative economic magnitudes of a country show
variations in different economic activities in terms of production, investment,
employment, credits, prices, and wages. Such changes represent different
phases of business cycles.

The different phases of business cycles are shown in Figure-1:

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There are basically two important phases in a business cycle that are
prosperity and depression. The other phases that are expansion, peak, trough
and recovery are intermediary phases.

Figure-2 shows the graphical representation of different phases of a

business cycle:

As shown in Figure-2, the steady growth line represents the growth of

economy when there are no business cycles. On the other hand, the line of
cycle shows the business cycles that move up and down the steady growth
line. The different phases of a business cycle (as shown in Figure-2) are
explained below.
1. Expansion:
The line of cycle that moves above the steady growth line represents the
expansion phase of a business cycle. In the expansion phase, there is an
increase in various economic factors, such as production, employment,
output, wages, profits, demand and supply of products, and sales.

In addition, in the expansion phase, the prices of factor of production and

output increases simultaneously. In this phase, debtors are generally in good
financial condition to repay their debts; therefore, creditors lend money at
higher interest rates. This leads to an increase in the flow of money.

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In expansion phase, due to increase in investment opportunities, idle funds of
organizations or individuals are utilized for various investment purposes.
Therefore, in such a case, the cash inflow and outflow of businesses are
equal. This expansion continues till the economic conditions are favorable.

2. Peak:
The growth in the expansion phase eventually slows down and reaches to its
peak. This phase is known as peak phase. In other words, peak phase refers to
the phase in which the increase in growth rate of business cycle achieves its
maximum limit. In peak phase, the economic factors, such as production,
profit, sales, and employment, are higher, but do not increase further. In peak
phase, there is a gradual decrease in the demand of various products due to
increase in the prices of input.

The increase in the prices of input leads to an increase in the prices of final
products, while the income of individuals remains constant. This also leads
consumers to restructure their monthly budget. As a result, the demand for
products, such as jewellery, homes, automobiles, refrigerators and other
durables, starts falling.

3. Recession:
As discussed earlier, in peak phase, there is a gradual decrease in the demand
of various products due to increase in the prices of input. When the decline in
the demand of products becomes rapid and steady, the recession phase takes
place.

In recession phase, all the economic factors, such as production, prices,

saving and investment, starts decreasing. Generally, producers are unaware of
decrease in the demand of products and they continue to produce goods and
services. In such a case, the supply of products exceeds the demand.

Over the time, producers realize the surplus of supply when the cost of
manufacturing of a product is more than profit generated. This condition
firstly experienced by few industries and slowly spread to all industries.

This situation is firstly considered as a small fluctuation in the market, but as

the problem exists for a longer duration, producers start noticing it.
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Consequently, producers avoid any type of further investment in factor of
production, such as labor, machinery, and furniture. This leads to the
reduction in the prices of factor, which results in the decline of demand of
inputs as well as output.

4. Trough:
During the trough phase, the economic activities of a country decline below
the normal level. In this phase, the growth rate of an economy becomes
negative. In addition, in trough phase, there is a rapid decline in national
income and expenditure.

In this phase, it becomes difficult for debtors to pay off their debts. As a
result, the rate of interest decreases; therefore, banks do not prefer to lend
money. Consequently, banks face the situation of increase in their cash
balances.

Apart from this, the level of economic output of a country becomes low and
unemployment becomes high. In addition, in trough phase, investors do not
invest in stock markets. In trough phase, many weak organizations leave
industries or rather dissolve. At this point, an economy reaches to the lowest
level of shrinking.

5. Recovery:
As discussed above, in trough phase, an economy reaches to the lowest level
of shrinking. This lowest level is the limit to which an economy shrinks.
Once the economy touches the lowest level, it happens to be the end of
negativism and beginning of positivism.

This leads to reversal of the process of business cycle. As a result, individuals

and organizations start developing a positive attitude toward the various
economic factors, such as investment, employment, and production. This
process of reversal starts from the labor market.

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Consequently, organizations discontinue laying off individuals and start
hiring but in limited number. At this stage, wages provided by organizations
to individuals is less as compared to their skills and abilities. This marks the
beginning of the recovery phases.

7 conclusion

the basic of above analysis , we may conclude that the study of trends of
business cycles .

It was a very pleasant experience for all in making this project

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