CHAPTER THREE

ECONOMIC PERFORMANCE AND BUSINESS CYCLE

3.1 Macroeconomic Problems and Policy Instruments: The macroeconomic policy challenges are:
 To boost economic growth
 To stabilize the business cycle (fluctuation)
 To reduce unemployment
 To keep inflation low
 To reduce both governmental and international deficits.
Business cycle/ fluctuations: To relate business cycle with economic growth, we have to see potential GDP.
Potential GDP: is the GDP at full employment of resources.
Definition of Business cycles:  The business cycle, in short, is an alternate expansion and contraction in overall business
activity, as evidenced by fluctuations in measures of aggregate economic activity, such as, the gross product, the index of
industrial production, and employment and income. Business cycle: is an irregular up and downs of real GDP around
potential GDP. It is simply fluctuations of the real GDP around potential GDP.

Keynes has defined as “A trade cycle is composed of periods of goods trade characterized by rising prices and low
redundancy percentages.”

Gordon has defined as “Business Cycles consist of recurring alteration of expansion and contraction in aggregate economic
activity, the alternating movements in each direction being self reinforcing and pervading virtually all parts of the economy.”

The most satisfactory definition is by Estey: “Cyclical fluctuations are characterized by altering waves of expansion and
contractions. They do not have a fixed rhythm they are cycles of contraction and expansion recur frequently and in fairly
similar patterns.” An important point to be noted in the case of business cycle in that” no cycle in perfect regular with
uniform frequency and amplitude that is the time taken to move from one peak level of output to the next would always be
the same and the level of output and employment would always vary in the same proportion between the upper and lower
turning point but such cycles never occurred. Thus business cycles are recurrent fluctuations in aggregate employment,
income, and output and price level.

3.2. Types of Business Cycles

1. The Short Kitchin Cycle: - This is also termed as the minor cycle which is of just about forty five months gap. It is well-
 known after the name of British economist Joseph Kitchin who made a difference among a major and a minor cycle
year nineteen twenty three. He came to the termination on the basic of his research that a major cycle is composed of
two or three minor cycles of forty five months.
2. The Long Jugler Cycle: - This cycle is also termed as the major cycle. It is defined “as the fluctuation of business
presentation among successive crises.” Clement Jugler, French economist presented those periods of prosperity, crisis
and liquidation adopted each other always in the same order. Later economists have come to the end that a Jugler
cycle’s duration is on the average nine and a half years.
3. The Very Long Kondratieff:- N.D.Kondratieff, the Russian economist came to the conclusion that there are longer waves
of cycles of more than fifty years duration made of six Jugler cycles. A very long cycle has come to be known as the
Kondratieff wave.
4. Building Cycles: - another type of cycle associates to the construction of buildings which is of fairly regular duration.
Its duration is twofold that of the major cycles and is on average of eighteen years duration. Such cycles are related
with the names of Warren and Pearson.
5. Kuznets Cycle: - Simon Kuznets propounded a new type of cycle the secular swing of sixteen to twenty two years which
is so propounded that it dwarfs the seven to eleven years cycle into associated insignificance. This has come to be
known as the Kuznets cycle.

3.3. The Four Phases of Business Cycle: Business Cycle (or Trade Cycle) is divided into the following four phases:

1. Prosperity Phase: Expansion or Boom or Upswing of economy.

2. Recession Phase: from peak to line of potential GDP (upper turning point).
3. Depression Phase: Contraction or Downswing of economy.
4. Recovery Phase: from depression to prosperity (lower turning Point).

Diagram of Four Phases of Business Cycle

The four phases of business cycles are shown in the following diagram:
The business cycle starts from a trough (lower point) and passes through a recovery phase followed by a period of expansion
(upper turning point) and prosperity. After the peak point is reached there is a declining phase of recession followed by a
depression. Again the business cycle continues similarly with ups and downs.

Explanation about the Four Phases of Business Cycle

The four phases of a business cycle are briefly explained as follows:-

1. Prosperity Phase

When there is an expansion of output, income, employment, prices and profits, there is also a rise in the standard of living.
This period is termed as Prosperity phase. The features of prosperity are:-
a) High level of output and trade.
b) High level of effective demand.
c) High level of income and employment.
d) Rising interest rates.
e) Inflation.
f) Large expansion of bank credit.
g) Overall business optimism.
h) A high level of MEC (Marginal efficiency of capital) and investment.
Due to full employment of resources, the level of production is Maximum and there is a rise in GNP (Gross National Product).
Due to a high level of economic activity, it causes a rise in prices and profits. There is an upswing in the economic activity
and economy reaches its Peak. This is also called as a Boom Period.
 2. Recession Phase

The turning point from prosperity to depression is termed as Recession Phase. During a recession period, the economic
activities slow down. When demand starts falling, the overproduction and future investment plans are also given up. There is
a steady decline in the output, income, employment, prices and profits. The businessmen lose confidence and become
pessimistic (Negative). It reduces investment. The banks and the people try to get greater liquidity, so credit also contracts.
Expansion of business stops, stock market falls. Orders are cancelled and people start losing their jobs. The increase in
unemployment causes a sharp decline in income and aggregate demand. Generally, recession lasts for a short period.

1. Depression Phase

When there is a continuous decrease of output, income, employment, prices and profits, there is a fall in the standard of
living and depression sets in. The features of depression are:

1. Fall in volume of output and trade.

2. Fall in income and rise in unemployment.
3. Decline in consumption and demand.
4. Fall in interest rate.
5. Deflation.
6. Contraction of bank credit.
7. Overall business pessimism.
8. Fall in MEC (Marginal efficiency of capital) and investment.
In depression, there is under-utilization of resources and fall in GNP (Gross National Product). The aggregate economic activity
is at the lowest, causing a decline in prices and profits until the economy reaches its Trough (low point).
 1. Recovery Phase

The turning point from depression to expansion is termed as Recovery or Revival Phase. During the period of revival or
recovery, there are expansions and rise in economic activities. When demand starts rising, production increases and this
causes an increase in investment. There is a steady rise in output, income, employment, prices and profits. The businessmen
gain confidence and become optimistic (Positive). This increases investments. The stimulation of investment brings about the
revival or recovery of the economy. The banks expand credit, business expansion takes place and stock markets are
activated. There is an increase in employment, production, income and aggregate demand, prices and profits start rising, and
business expands. Revival slowly emerges into prosperity, and the business cycle is repeated. Thus, we see that, during the
expansionary or prosperity phase, there is inflation and during the contraction or depression phase, there is a deflation.

There are two turning points: The business cycle is characterized by two turning points namely peaks and troughs and
periods or phases of recession and recovery. These are four phases:

i. Peak. The peak is the highest level of real GDP in the cycle. Each peak indicates an economy operating at close to full
capacity, so that national product and national income corresponds to a very high degree of utilization of labour,
factories and offices. During a peak of the cycle, there are likely to be shortage of labour, parts and materials in certain
markets
ii. Through. A trough is the lowest level of GDP observed over the business cycle. A trough is reached when the economy
begins to pull out of recession. During this time there is an excessive amount of unemployment and idle productive
capacity. Businesses are more likely to fail because of low demand for their products.

Real GDP
GDP

A2 A3 Potential GDP

A1
B3
B2
B1 Time
 Points: A1, A2 & A3 are peak
Points: B1, B2 & B3 are through

3.4. Characteristic of Business Cycle: From the definitions given above we can gather the features of business cycle.

(i) It occurs periodically: - The business cycle occurs periodically in a regular fashion. This means the prosperity will be
occurring alternatively.
(ii) It is all embracing: - The business cycle implies that the prosperity or depressionary effect of the phase will be affecting
all industries in the entire economy and also affecting all industries in the entire economy and also affecting the economies
of other countries. It is international in character. The Great Depression of 1929 is an example of this.
(iii) It is wave-like: - The business cycle will have a set pattern of movements which is analogous to waves. Rising prices,
production, employment and prosperity will become the features of upward movement: Falling prices, employment will
become the features of the downward movement.
(iv) The process is cumulative and self-reinforcing:-    The upward movement and downward movement are cumulative in
their process. When once the upward movement starts, it creates further movement in the same direction by feeding on
itself. This momentum will persist till the forces accumulate to alter the direction and create the downward movement. When
downward movement starts, it persists in the same direction leading to the worst depression and stagnation till it is
retrieved to gain an upward movement.
(v) The cycles will be similar but not identical: - Different cycles and waves in the business cycles will be similar in general
feature, but they are not identical in all respects. “A typical cycle constructed by making, as it is where, a composite
photograph of all the recorded cycles would not materially differ in form varies widely from any one of them. But this
typical cycle is not an exact replica of any individual cycle. The rhythm is rough and imperfect. All the recorded cycles are
members of the same family, about among them are no twins”.

Characteristics of Business Cycle

 Business Cycles posses the following characteristic features
 Cyclical fluctuations are wave like shifts
 Fluctuations are recurring in nature
 They are non-periodic or uneven. In other words the peaks and channel do not occur at usual intervals.
 They transpire in such total variables as productivity, earnings, employment and prices.
  These variables move at about the same period in the same course but at diverse rates.
 The sturdy commodity industries experience associatively wide fluctuations in productivity and employment but
relatively small variations in prices. On the other hand, non-durable commodity industries experience relatively wide
variations in prices but associatively small variations in productivity and employment.
 Business cycles are not seasonal variations such as upswings in retail trade during festive seasons.
 They are not secular trends such as long run growth or decline in fiscal performance.
 Upswings and downswings are collective in their effects.
 Therefore, business cycles are recurring fluctuations in total employment, earnings, productivity and price level.

3.5. Causes of Business Cycle

1. Interest rates: - Changes in the interest rate affect consumer spending and economic growth for example, if the interest
rate is cut; this reduces borrowing costs and therefore increases disposable income for consumers. This leads to higher
spending and economic growth. However, if the Central Bank increases interest rates to reduce inflation, this will tend to
reduce consumer spending and investment, leading to an economic downturn and recession. See: Interest rate cycle

2. Changes in house prices: - A rise in house prices creates a wealth effect and leads to higher consumer spending. A fall in
house prices causes lower consumer spending and bank losses. (house prices and consumer spending) In the late 1980s,
the boom in house prices caused an economic boom. The drop in house prices in early 1990s caused the recession of 1991-
92.
3. Consumer and business confidence. People are easily influenced by external events. If there is a succession of bad
economic news, this tends to discourage people from spending and investing making a small downturn into a bigger
recession. But, when the economy recovers this can cause a positive bandwagon effect. Economic growth encourages
consumers to borrow and banks to lend. This causes higher economic growth. Confidence is an important factor in causing
the business cycle.

4. Multiplier effect: - The multiplier effect states that a fall in injections may cause a bigger final fall in real GDP. For example,
if the government cut public investment, there would be fall in aggregate demand and a rise in unemployment. However,
those who lost their jobs would also spend less, leading to even lower demand in the economy. Alternatively, an injection
could have a positive multiplier effect.
5. Accelerator effect: - This states that investment depends on the rate of change of economic growth. If the growth rate falls,
firms reduce investment because they don’t expect output to rise as quickly.
 Volatile investment

This theory suggests investment is quite volatile and small changes in the rate of growth have a big effect on investment
levels.

6. Inventory cycle: - Some argue that there is a natural inventory cycle. For example, there are some ‘luxury’ goods we buy
every five years or so. When the economy is doing well, people buy these luxury items causing faster economic growth. But,
in a downturn, people delay buying luxury goods and so we get a bigger economic downturn.

3.6. Impact of Business Cycle on Economy

A volatile business cycle is considered bad for the economy. A period of economic boom (rapid growth in economy) invariably
leads to inflation with various economic costs. This inflationary growth tends to be unsustainable and leads to a bust
(recession).

The biggest problem of the business cycle is that recession represents a large wastage of resources. A prolonged period of
unemployment can also lead to a loss of labour productivity as workers get discouraged and leave the labour market.

Monetary authorities tend to try and minimize fluctuations in the business cycle. They seek to avoid inflation and avoid a
recession. In the UK, the main tool to smooth the business cycle is the use of interest rates. The government may also
use fiscal policy. In a recession, the government could try increasing government spending and cutting tax.

Some economists argue that the business cycle is an essential part of an economy. Even downturns have their role to play as
it tends to ‘shakeup’ the economy and weed out ‘inefficient’ firms and creating greater incentives to cut costs and be
efficient. However, this view is controversial and other economists argue that in a recession, even ‘good efficient’ firms can
go out of business leading to a permanent loss of productive capacity
1.7. Theory Of Business Cycle ; there are many types of trade theories namely :

a) Climate or sun spot theory f) Over-investment theory

b) The psychological theory
c) Innovation theory
d) Monitory theory
e) Over production theory
1. Climate or sun spot theory:
g) Keynes theory
h) Real business cycle theory
i) Political business cycle theory
j) Rational expectation theory of business cycle

Spot appears

Sun emits less heat

Crop yield will be low

Income of farmers falls

Less purchasing power

- Sunspot theory Offered by Mr . Jevan.

- Trade cycles are caused by sun spots.
- Sunspots appear on the face of the sun.
- Almost at regular intervals of 10.4 years
Draw Backs
- Based on agro based theory
- Good or bad crop can only be one factor or depression of expansion but they can’t account all the features
- The trade cycle occur at regular intervals of 10.4 years, while length of the trade cycle is 7 to 8 years.

2. The psychological theory

- The psychological theory and given by professor PIGOU
- Trade cycles are caused by the optimistic and pessimistic attitude of the businessman
Optimistic
- Brisk businessman earn high profits and expands the investment and production
- Over estimate the future demand of goods and increase the production.
Pessimistic
 businessman puts less investment and less production
 Rate of employment and rate of profit Decreases
 Supply exceeds the demand so price falls.
Drawbacks
 Considers only psychological views of businessman
 Ignore other factors
2. . Innovation theory
 Innovation can be of various types•
1-new product
2-new market
3-niche market
4-new technology
5-new source of raw material
 Innovation leads to more production
 Ultimately increase in aggregate demand
 Further increase in income of business.
Drawback of innovation theory
 The full employment assumption is unrealistic.
 Bank is not the only source of finance for every innovation in business.
 Many times the profits are ploughed back to finance innovations.
  Innovation cannot be the sole cause of business cycle
3. Over investment theory
 Natural rate of interest is determined at a point where savings(voluntary)= investment•
 If market ROI < natural ROI then, businessman demands more investment, capital, more prod., more income, more
labour, more demand.
 If market ROI> natural ROI then reduction in capital demanded, less prod. , less labour , less income , less demand
4. Over production theory•
 If economic system is capitalism, all the entrepreneurs wants to produce goods which are profit making•
 Leads to high competition because of entry of new firms•
 Profit making possibility : high•
 Due to over production activity, initially everything increases
 Thereafter as a result firms starts withdrawing resulting in
o Less demand
o Less income
o Less production
o Less labour
5. Keynes theory
1) concept of marginal efficiency of capital(MEC)
MEC: - rate
Where price of capital=yield from capital
Example: buying of machinery- how much return will we get in the coming years
2) Says that depression & unemployment is there because there is decrease in the aggregative demand.
 Now aggregative demand can be increased: 1.investment 2.consumption
And we know in short run consumption can’t be increased….but so can investment
SO, by controlling the investment, depression & unemployment can be reduced in the short run.
3) Yield depends on the expectations (psychology):- yield is the only factor affecting MEC and yield is affected by the
psychology of the entrepreneur….
 Possible causes of trade cycle•
MEC & efficiency can’t be the only reasons………•

Therefore al the theories have an equal impact on the trade cycle….

6. Monetary theory
 Takes money supply into consideration
 Deals with money expansion and contraction
 Money contraction - demand falls, rate of interest increases- decreased borrowings• Money expansion –
demand rises, rate of interest decreases- increased borrowings
Criticism
 Trade cycle is not purely monetary phenomenon
 It is worldwide phenomenon
3.7.1. Hawtreys’ Monitory theory of trade cycle

Ralph G. Hawtrey presented his explanation of “business cycles” in 1926. According to him, changes in money supply are the
major source of fluctuations in the business activity. Due to this reason his theory of business cycles is termed as the
monetary theory.” Non-monetary factors such as floods, drought, earthquake, wars, strikes etc., can cause partial depression,
but the general depression can only be caused by contraction of money supply. In Hawtrey’s opinion, the most distinguishing
feature of trade cycle is periodicity. Period of good trade is followed by period of bad trade. They occur alternatively and
duration of the cycle is from seven to eleven years. Money and banking system are the sole source of business cycles.
Hawtrey based his theory on Say’s law of markets and believes in classical assumption of full employment. Below is given a
description of the factors causing the up-swing and the down-swing, which result in large fluctuations in the economic
activities.

The Upswing: When traders decide to increase their stocks, they borrow from banks. Credit is created and this leads to an
increase in effective demand. Incomes of those who participate in the production process increase. So there will be an
overall expansion in the economy. The expansion is in terms of output, employment, money supply and, prices.
The Downturn: The demand and hence the production will keep on rising till the level of maximum capacity is achieved.
Further increase in demand will cause price level to go up. Prices will also rise due to an increase in money supply in the
economy. Increase in price level further increases the demand for credit. But the banks can provide loans only up to a
specific limit. Eventually interest rate is raised and the banks ask for the repayment of the previous loans. Tight credit policy
will be followed. Firms in order to return the loans will stop further investment. Projects will stop and raw materials and
intermediate goods will be sold at reduced prices. Overall price level will fall. This will discourage new investment and the
economy will be in depression.
Revival: When the banks get their money back. They start lending the money on easy terms and conditions. With this the
process of upswing starts again, and this is how the business cycles originate.
In the above discussion, it has been observed that changes in supply of money are responsible for economic fluctuations.
Business cycles are associated with credit expansion and contraction which in turn results in inflation and deflation in the
economy, respectively.

3.7.2. Keynesian Theory of Business Cycles

Keynes response to classical theory of trade cycle. The Keynes theory of business fluctuations was developed during the
Great Depression of the 1930 s it was in response to the classical theory that the economy is self correcting. The classical
economists were of the view that if at any time excessive unemployment occurs in the economy market forces
automatically restores the economy to its full employment level in the long run.

3.7.3. Keynes theory of trade cycles

J. M. Keynes, however, disagreed with the above view He presented a new theory which is based on a demand side
explanation of business cycles. According to Keynes in the short run, the level of income, output and employment is
determined by the level of aggregate effective demand. Aggregate demand is composed of demand for consumption goods
and demand for investment goods. If the expenditure on goods and services and investment is large, then greater quantity of
goods will be produced. This will create more employment and income if the aggregate demand is low then smaller amount
of goods and services will be produced. A lower level of aggregate, demand thus results in smaller output, income and
employment. J.M. Keynes is of the view that it is the changes in the level of aggregate demand which bring about
fluctuations in the level of income output and employment. Now what causes changes in aggregate demand?

The fluctuation in economic activity says Keynes is due to fluctuations in investment demand. The investment demand is
determined by expected rate of profit from the investment on the one hand and the rate of interest on the other hand.

Investment demand

Lord Keynes defines marginal efficiency of capital as the expected rate of profit between the prospective yield of that type
of capital and the cost of producing that unit If the prospective rate of return of capital used in the business is higher than
the current rate of interest the entrepreneurs are encouraged to increase investment spending on construction, equipment,
and inventories. Marginal efficiency of capital depends upon two factors: (1) Expected return from capital assets and (2) The
supply price or replacement cost of the assets. Marginal efficiency of capital is raised by opening of a new investment a new
product a new method of production a major change in the organization of business and by the expectation of rising prices
It is lowered by failing prices rising costs productive difficulties and a decline in investment. A rise in the marginal efficiency
of capital relatively to the current rate of interest leads to a burst in investment. The volume of employment and income
increases. The demand for consumer goods goes up which leads to further increase in investment goods industries.

Expansion phase of the business cycle

During the expansion of trade cycle the investors have an optimistic outlook. They in enthusiasm over estimate the expected
rate of return from the investment projects. The expansion of the economy goes on automatically till full employment of
resources is reached. The movement of the economy towards full employment is called a boom. At the boom phase the
investors ignore the fail in the marginal efficiency of capital. The rate of interest also does not act as a brake on rising
investment. The over investment the economy raises the cost of production of goods and begins to reduce profits on
investment.

Recession and depression

The contraction phase of the business cycle is brought about by a fall in the marginal efficiency of capital relatively to the
prevailing rate of interest when all the remunerative channels for investment are fully utilized then the scope for further
investment declines. Due to excessive demand for loan-able funds, the reserves of the banks get depleted. The market rate of
interest goes up. The higher rate of interest induces people to save more money. The higher liquidity preference or the
increasing demand for money to hold reduces the demand for consumer goods. When the business prospects appear bleak
the investors are then not prepared to renew or extend their capital equipment. Due to excess of savings over-investment the
income and employment decline we are then in a phase of recession which finally results in depression. Keynes theory
dominated economic thinking from late 1930’s to early 1970’S.

Criticism of Keynes Theory of Trade Cycle.

The Keynesian theory of business cycle is criticized on the following grounds:

(i) It offers half explanation Keynes theory offers half explanation of the business cycle. It fails to explain the periodicity of
the trade cycles.

(ii) Neglect of the role of accelerator J M Keynes explained the process of downswing and upswing of trade cycle through
the concept of investment multiplier. The fact however is that multiplier alone does not offer satisfactory explanation of the
business fluctuations. It is the multiplier acceleration interaction which brings about expansion or contraction of the
economic activity.
(iii) Psychological theory Keynes theory of trade cycle is very near to the psychological theory of the Classical economists. It
does not explain the real factors which cause changes in business expectations.

Conclusion

J. M. Keynes did not build up an exclusive theory of the trade cycle. He simply gave a systematic account of the upturn and
the down turn in economic activity.

Business cycle theories

We consider four fundamentally different theories of the business cycle, chronologically:
 The classical school of thought (self-correcting)
 The Keynesian revolution (no self-correction)
 The new classical theory (policy ineffectiveness)
 The new Keynesian theory (contract-based wage and price stickiness)

4.1. Control of business cycle fluctuation measures and controls

Following are the main measure which can be suggested for the effective control of business cycle fluctuation.

1. Monetary Policy
2. Fiscal Policy
3. State Control of Private Investment
4. International Measures to Control of Business Cycle Fluctuation
5. Reorganization of Economic System
1. Monetary Policy - A control of Business Cycle

Monetary policy as measure to control business cycle fluctuation refers to all those measures which are taken with a view
to control money and credit supply in the country. When we are in the state of full employment and we are facing inflation,
a deflationary policy may be adopted. The central bank can reduced the quantity of money in circulation. The bank can adopt
different measures for this purpose, like increase in the bank rate, selling of securities in the market, increasing the reserve
ratio of the member banks etc.

On the other hand, in case of deflation the central bank can adopt inflationary monetary policy by lowering the bank rates
or purchase of securities. Monetary policy has achieved a very limited success in the past, because central bank has not full
power over the supply of money and credit in the country. Moreover, the quantity of money has failed during the world
depression of 1930s.

2. Fiscal Policy Measure to Control of Business Cycle Fluctuation

Fiscal policy as measure to control business cycle fluctuation nowadays is considered to be a powerful anti-cycle weapon in
the hands of the government. Fiscal policy involves the process of shaping the public finance (income and expenditure) with a
view of reduce fluctuations in the business cycle and attainment of full employment without inflation.

In case of inflation the governments reduces the public work programs, imposing heavy taxes on business profits to
discourage private investment, reduces purchasers power, taking loans from the people, prepares surplus budget to reduce
public debt. All these fiscal measures greatly help in reducing the inflationary trend in the economy.

If the economy facing depression, the government increases it expenditure on public works programs like construction of
new canals, new roads, buildings etc. Increase in government expenditure, income, employment, profit and consumption of
the people. In order to encourage private investment the government reduces taxes on profit. The government also prepares
deficit budget and the deficit is met by loans. All these fiscal measures to control business cycle sets in upswing in the
economy.
3. State Control of Private Investment

Some economists have suggested that if a government takes control of private investment is a tool to control of business
cycle fluctuations can be controlled within the limits. The other economists, who disagree with the above view state that if a
government takes control of private investment, private investment will be discouraged. Low investment will reduce
 employment and income. J.M Keynes is of the view that if we adopt the middle way we can get control of business cycle
fluctuation.

5. International Measures Control of Business Cycle

Today, every country has trade relations with the rest of the world. If there is inflation or deflation in one country, it can be
easily carried to other countries. The example of great depression can be given. Business cycle is an international
phenomenon and it should be tackled on international level. Different measures to control business cycle fluctuations have
been suggested by some well-known economists these are:
 Control of International Production

 International Bill Stock Control

 International Investment Control

5. Reorganization of Economic System

Some economists suggest that there should be complete reorganization of the whole economic system to control of business
cycle fluctuation. The capitalistic system of production should be replaced by the socialistic system of production. In
socialistic economy, there are few chances of cyclic fluctuations. In 1930, when all capitalist countries of the world were
suffering from depression, it was only socialist countries which were free from such crisis.