1. What is 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.

A business cycle is completed when it goes through a single boom

and a single contraction in sequence. The time period to complete
this sequence is called the length of the business cycle. A boom is
characterized by a period of rapid economic growth whereas a
period of relatively stagnated economic growth is a recession.
These are measured in terms of the growth of the real GDP,
which is inflation-adjusted.
Stages of the Business Cycle
In the diagram above, the straight line in the middle is the steady
growth line. The business cycle moves about the line.  Below is a
more detailed description of each stage in the 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. 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.
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. 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, contract
to 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 the trough, the economy moves to the stage of recovery. In
this phase, there is a turnaround in the economy, and it begins to
recover from the negative growth rate. Demand starts to pick up
due to low prices and, consequently, supply begins to increase.
The population develops a positive attitude towards investment
and employment and production starts increasing.
Employment begins to rise and, due to accumulated cash
balances with the bankers, lending also shows positive signals
2. Structure of business firms

Def: “Business structure refers to the legal structure of an

organization that is recognized in a given jurisdiction. An organization’s
legal structure is a key determinant of the activities that it can
undertake, such as raising capital, responsibility for obligations of the
business, as well as the amount of taxes that the organization owes to
tax agencies.”

. Sole Proprietorship

A sole proprietorship is the simplest business structure and involves

one individual who is responsible for the day-to-day operations of the
business. Also, from a tax perspective, the incomes and expenses of the
business are included in the tax return of the owner.

The business is not required to file separate income tax forms from the
owner since the business does not exist as a separate legal entity from
its owner. The owner is required to file Form 1040, and the form must
include Schedule C and Schedule SE for self-employment tax.

There are several advantages to opting for a sole proprietorship

business structure. First, it is inexpensive to start, and there are
minimal fees incurred when registering a sole proprietorship. In most
states, the only costs associated with running a sole proprietorship
are business taxes and operating license fees.

Business owners may also be eligible for tax deductions, such as health
insurance. Unlike a limited liability company, a sole proprietorship is
not required to meet ongoing requirements such as shareholder
meetings and voting or election of directors. On the downside, since it
is not a separate legal entity from its owners, the owners will be
personally liable for the debts, liabilities, and obligations of the
business.

2. Partnership

A partnership is a form of business structure that comprises two or

more owners. It is the simplest form of business structure for a
business with two or more owners. A partnership shares a lot of
similarities with a sole proprietorship. For example, the business does
not exist as a separate legal entity from its owners, and therefore, the
owners and the entity are treated as one person.
When filing taxes, the profits and losses of the business are passed on
to the partners, and each partner is required to report the information
in Form 1065 with their personal tax returns. Also, partners are
required to pay self-employment tax, depending on their share of the
enterprise’s profits. Schedule K-1, which records the profits or losses,
should accompany Form 1065.

A partnership business structure offers several advantages. When

registering a partnership, there is little paperwork involved, and the
partners are not required to meet the same level of requirements that
limited liability companies are subjected to. Also, partnerships enjoy a
special taxation arrangement, where partners are required to report
their share of profit or loss of the business on their income tax return.

On the downside, the partners are personally liable for the debts and
obligations of the business, and their personal assets can be sold off to
pay the business debts. Also, disagreements may occur between the
partners and this may slow down the operations of the business.

3. Corporation

A corporation is a type of business structure that gives the entity a

separate legal entity from its owners. It is complex and expensive to set
up, and it requires the owners to comply with more tax requirements
and regulations. Most corporations hire attorneys to oversee the
registration process and to ensure that the entity complies with the
state laws where it is registered.

When an organization intends to go public through the issue of

common stock to the public, it must first be incorporated as a
corporation. Corporations are required to pay both federal and state
taxes, while the shareholders are required to disclose their dividend
payments when filing their personal income taxes.

The main types of corporations are C-corporation and S-corporation.

A C-corporation exists as a separate legal entity from its owners,
whereas an S-corporation may consist of up to 100 shareholders and
functions in the same way as a partnership.
One of the advantages of a corporate structure is the ability to raise
capital. The entity can raise large amounts of capital by selling shares of
stock to the public. Also, the business structure comes with limited
personal liability, offering the owners protection against debts,
liabilities, and obligations of the business.

On the downside, a corporation is subject to more requirements, such

as meeting, voting, and the election of directors, and it is more
expensive to form compared to a sole proprietorship or partnership.

4. Limited Liability Company (LLC)

A limited liability company (LLC) is a hybrid business structure that

combines the best of both worlds, i.e., it possesses the characteristics
of both partnerships and corporations. It provides personal liability
protection to business owners while reducing tax and business
requirements. The profits and losses of the business are passed
through to the owners, and each business owner is required to include
a share of the profits/losses in their personal tax returns.

Also, unlike an S-corporation, which is subject to a limit of 100

shareholders, there is no limit to the number of shareholders in a
limited liability company. When registering a limited liability company,
the entity must file its articles of association with the Secretary of State
where it intends to do business. In some states, the entity may be
required to file an operating agreement.

One of the advantages of setting up a limited liability company is that it

comes with fewer requirements compared to a corporation. Less
paperwork is involved, and the owners enjoy limited liability, which
protects their assets from being sold to pay liabilities of the entity. A
limited liability company is not subject to any limitation on the number
of shareholders it can appoint.

On the downside, a limited liability company is expensive to set up

since it must register with the state where it intends to conduct
operations. Also, the entity may need to hire an accountant and an
attorney to ensure that it complies with tax and regulatory
requirements.
Types of business entites

Public Limited Company In India

A Public Limited Company in India has a minimum of three directors, a

minimum of seven shareholders, and can have a maximum of
unlimited shareholders. It can either be listed in a stock exchange or
remain unlisted. Once the company is listed as a Public Limited
Company in a stock exchange, its shareholders can freely trade the
company’s shares. Since it is a separate legal entity, the company’s
existence is not affected by retirement, death, or insolvency of its
shareholders. Incorporating such types of entities can be difficult and
time-consuming.

Private Limited Company In India

A Private Limited Company in India is a privately held small business

entity and considered as an independent legal entity on incorporation.
It has a minimum of one and a maximum of fifty shareholders. Unlike
Public Limited Companies, Private Limited Companies cannot publicly
trade its shares. It can have a minimum of two and a maximum of
fifteen directors.

Joint-Venture Company In India

A Joint Venture (JV), as the name suggests, is a new business entity

created through a partnership between foreign and Indian investors, in
which the partners jointly share the profits, losses, management
responsibilities, and operation expenses. The advantages of joint
ventures are that the foreign company can utilize the well-established
contact network, distribution, marketing channels, and the available
financial resources of the Indian partner. A JV also offers the investors
to jointly manage the risks involved with the new business and limit
their individual exposure by sharing the liabilities.

What is macro and micro economy

What is Microeconomics?
Microeconomics is the study of decisions made by people and businesses regarding the
allocation of resources and prices of goods and services. The government decides the regulation
for taxes. Microeconomics focuses on the supply that determines the price level of the economy.

It uses the bottom-up strategy to analyse the economy. In other words, microeconomics tries to
understand human’s choices and allocation of resources. It does not decide what are the
changes taking place in the market, instead, it explains why there are changes happening in the
market.

The key role of microeconomics is to examine how a company could maximise its production
and capacity, so that it could lower the prices and compete in its industry. A lot of
microeconomics information can be obtained from the financial statements.

The key factors of microeconomics are as follows:

 Demand, supply, and equilibrium

 Production theory
 Costs of production
 Labour economics

What is Macroeconomics?
Macroeconomics is a branch of economics that depicts a substantial picture. It inspects itself
with the economy at a massive scale, and several issues of an economy are considered. The
issues confronted by an economy and the headway that it makes are measured and
apprehended as a part and parcel of macroeconomics.

Macroeconomics studies the association between various countries regarding how the policies
of one nation have an upshot on the other.

In macroeconomics, we normally survey the association of the nation’s total manufacture and
the degree of employment with certain features like cost prices, wage rates, rates of interest,
profits, etc., by concentrating on a single imaginary good and what happens to it.

The important concepts covered under macroeconomics are as follows:

1. Capitalist nation
2. Investment expenditure
3. Revenue

importance of national income

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