Business Cycle The business cycle is the natural rise and fall of economic growth that - PowerPoint Presentation

1. Business Cycle

2. The business cycle is the natural rise and fall of economic growth that occurs over time. The business cycle is the downward and upward fluctuations of the productivity level of the economy, along with its natural growth rate over a long period.When businesses are increasing production, they need more employees. As a result, more people are hired, there is more money to spend, and businesses make more profits and can focus on growth.The rate at which production and consumption change positively is called "economic expansion."

3. If business production slows, not as many employees are needed. As a result, consumers have less spending money, and businesses reduce spending on growth.The rate at which production and consumption as a whole change negatively is called "economic contraction.“A business cycle is the fluctuations of Gross Domestic Products (GDP). It is a series of cycles of economic expansions and contractions, therefore, it is also called an economic cycle or a trade cycle

4. How Does the Business Cycle Work?The duration of a business cycle is the period containing one expansion and contraction in sequence. One complete business cycle has four phases: expansion, peak, contraction, and trough. They don’t occur at regular intervals or lengths of time, but they do have recognizable indicators.It's important to understand that there are mini-fluctuations within an economic phase that can make it appear as if the economy is transitioning to another phase.

5. The National Bureau of Economic Research (NBER) determines which cycle the economy is in using quarterly GDP growth rates.It also uses monthly economic indicators, such as employment, real personal income, industrial production, and retail sales.

6. Three factors cause each phase of the business cycle: Forces of supply and demand Availability of capital. consumer and investor confidence. The most critical is confidence in the future—when consumers and investors have faith in the future and policymakers, the economy tends to expand. It does the opposite when confidence levels drop.

7. Business Cycle Phases A country keeps track of the trade cycle to ensure that the economy is on the path of growth, unemployment steeps down, and the inflation rate  helps us understand how much the price of goods and services in an economy has increased in a year. For example, if the price of goods and services in an economy is now $103 and in the previous year the same was $100, then the inflation is $3). Remains under control.Expansion: When a nation’s GDP shows an upward move or recovers with time, this period of growth is remarked as economic expansion. During this phase, the various economic indicators like consumer spending, income, demand, supply, employment, output, and business returns shoot up.

8. Peak: During the expansion phase, the GDP spikes to its highest level; this is considered the economy’s peak. At this point, economic factors like income, consumer spending, and employment level remain constant.Recession is a business cycle contraction when there is a general decline in economic activity When demand peaks and starts to decline, the excessive supply of goods and services that aren't consumed, can lead to a recession,

9. with companies producing less and downsizing while people lose purchasing power and consumption continues to fall..Trough: This is the stage at which the GDP and other economic indicators are at their lowest. During this phase, the economy gets stuck at a negative growth rate. Additionally, the demand for goods and services reduces.

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11. An economy is expected to have constant growth, represented by the growth trend line.In reality, though, the economy is unstable. National output goes up and down periodically. It expands to touch the peak and contracts down to the trough.Predicting the business cycle phase is crucial for policymakers and governments so that they can deal with deflation and inflation accordingly. The cycle also warns investors, owners, consumers, and strategists

12. CAUSES OF BUSINESS CYCLEInternal Causes The factors that are built within the economic system and influence the business cycle are called the internal causes of the business cycle. The major causes that affect the business cycle are as follows:Change in Demand: A change in the demand of a good or service will lead to changes in production and supply of the concerned goods and services, thus, affecting output in an economy. This kind of change can also cause inflation in an economy if there is excessive demand. A decrease in demand will lead to lower output, lower employment affecting the income of the public eventually leading to a trough in the economy. If the situation is not resolved, it will lead to depression in the economy.

13. Investment Fluctuations: Changes in investments made will lead to differences in output in an economy much like what happens in changes in demand. So it naturally follows that an increase in investments will lead to expansion of the economy while a decrease will lead to trough or depression. There are a few factors affecting the investment decisions: expectation of profits, entrepreneurial and current rate of interests, and income generation.

14. Macroeconomic Policies: The monetary and other related policies set up by a government are the macroeconomic policies that immensely affect the business cycle. If the policies benefit businesses and investors, the economy will see an expansion or boom leading to economic growth, whereas, policies that will not benefit such businesses but discourage investment instead such as an increase in tax rates or removing subsidies will create recession in the economy.Supply of Money: It is obvious that more supply of money will make people spend more which will, in turn, lead to growth or expansion in the economy and vice-versa. But excessive money in the economy will lead to inflation that will hurt the spending habits of the citizens whose income did not increase at the same rate as inflation.

15. External Causes The factors or changes that arise outside of an economy but still affect it are called external causes of the business cycle. These are exogenous causes that affect economies in other countries as well.Wars: During wars, economic resources and available capital are used for manufacturing weapons and providing for the army which increases the need for basic amenities among the general citizens as the focus shifts to the battlefield and other places of the economy are ignored. This slows down the economy and is one of the main causes of the Great Depression.

16. Technology: Changes and development of technology is an essential cause of changes in the demands and supply of different goods and services. It is also an influencing factor of employment opportunities and progress in different fields of the economy.Natural Causes: Natural disasters like drought, famine or flooding greatly affect several factors of input in the economy such as transportation, employment, agriculture which results in an increase in existing prices of related products. Such natural calamities may cause depression.

17. Population Expansion: Excessive expansion in population puts pressure on the demands of an economy thereby affecting the supply and prices of products. There is a strict need to control the population through various policies in order to keep the economy in check.