1. Business Cycle

2.  The term business cycle refers to
economy-wide fluctuations in production
or economic activity over several
months or years.
 These fluctuations occur around a long-
term growth trend, and typically involve
shifts over time between periods of
relatively rapid economic growth (
boom), and periods of relative
stagnation or decline (recession).

3.  Business cycles are usually measured
by considering the growth rate of real
gross domestic product.
 Despite being termed cycles, these
fluctuations in economic activity do not
follow a mechanical or predictable
periodic pattern

5. Stages of Business Cycle
 Boom
 Depression or
contraction.
 Recession
 Recovery or
expansion.

6. Duration of Business Cycle
 Minor cycle – 1 to 3 years
 Major Cycle – 8 to 10 years
 Very Long Cycle – 50 – 60 years

7. Theories of Business
cycle

8. Climate Theory
 This theory divides into:
 Good weather
 Bad weather
 Example:
When all the parameters of the business cycle are
on higher level, it’s a good weather.
And if all the parameters start sliding down, the
weather is said to be bad.

9. Psychological Theory
 This theory divides into:
 Pessimist mindset.
 Optimist mindset.
 Example:
When the mood of the market is positive and based
on the parameters the growth is higher, its
optimistic mindset. On the other hand when the
mood is negative and expectations are low the
mindset is pessimistic.

10. Innovation Theory
 New invention (More profit)
Innovation (50) – earlier
(450) – following
Result  depression

11. Under consumption theory / Under
saving
 This theory is derived from demand,
 When the supply is more and demand is less, it is
under consumption and leads to stock piling
which in turn reduces the prices and brings in the
recession.

12. Over investment theory
 This theory has the base as investment,
If the investment required is 5 lakhs and invested is
8 lakhs, the return of investment will be lower.
Leading to recession.

13. Purely monetary policy
 Based on money supply
Market supply is high – everything upwards
Market supply is downwards – depression

14. Keynesian Theory
 Based on marginal efficiency of capital (MEC)
 More MEC (+) you must invest in your business
, economy is towards boom.
Less MEC (-) Depression.

15. Parameters of Business cycle
Phase Boom Depression Recession Recovery
Employment
Output
Wages
Prices
Interest
Bank credit
Cost of
production
Stock
Feeling of
industry