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Business Cycles: Presented By:-Ruhi Shaikh
Business Cycles: Presented By:-Ruhi Shaikh
CYCLES
Presented By:- Ruhi Shaikh
BUSINESS CYCLE
During Expansion
High growth: large investments, increase in
employment, income and expenditure
Inflation: Increase in investment forces more money
supply in the system, demand for factor inputs
increases, hence their prices increase which increases
cost of production. So wages and prices of goods also
increase.
Severe Competition: Firms resort to large amount of
non productive expenditure on advertisements and
publicity.
EFFECTS OF BUSINESS CYCLES
During Recession
Excess inventory: Those firms which had produced in
abundance during expansion phase face the problem of
maintaining unsold items.
Unemployment : in order to reduce investment,
recession phase is marked by large scale retrenchment.
Below capacity operations and liquidation of firms.
CONTROLLING BUSINESS CYCLES
At Firm Level
• Precautionary Measures: to be taken at the time of
expansion
• Investments: deter from investing huge amount of
funds in fixed assets.
• Inventory: should not create large inventory of raw
material or finished goods.
• Products: diversify in different markets and different
products, so that risk is diversified.
CONTROLLING BUSINESS CYCLES
Fiscal Measures
Public expenditure
Expansion: Government reduces expenditure to
curtail demand
Recession: Government increases expenditure on
various activities like health, transport,
communication, etc., to increase income of
individuals; this in turn increases aggregate
demand.
CONTROLLING BUSINESS CYCLES
Public revenue
Expansion: An increase in taxes takes away
portion of people’s money income and thus brings
down aggregate demand.
Recession: It is desirable that governments
reduce taxes.
An appropriate combination of these measures is
adopted after thorough examination of the causes of
business cycles.
Thank You