BUSINESS CYCLE

PREPARED:
BARSILIZA B. CREUS
MBA - 201411444
PHASES OF THE BUSINESS CYCLE

Expansion/Growth: In this phase of the

business cycle, consumer and business
spending rise.
Peak: After business expansion ,it will
produce near full capacity of output, and the
economy is at near full employment.
 Recession
This is a phase when real GDP begins
to decline. Consumers and business
reduce their spending, unemployment
rises, investment declines, and
pessimism about the economy is likely
to grow.
 Trough/Depression

This is the lowest point of the

business cycle. Business will be
operating below capacity, allowing
unemployment to reach high
levels.
 Features of Business Cycles

Variable Expansion Peak Recession Trough

Industrial Production Increase Rapid increase Decline Lowest

Increase Highest Decline Lowest

Demand
Increase Rapid increase decline rapid decline
Prices
Increase Rapid decrease Gradual decline Rapid decline
Cost
Increase High Falls slowly Falls rapidly
Investment
Gradual increase Rapid increase Falls Rapid falls
Employment

Liberal Very liberal Falls Rapid falls

The Business Cycle: diagram
Peak
Growth Recession

GDP

Trough or
Depression

TIME
 Sources of Business cycle

• AGGREGATE DEMAND

• AGGREGATE SUPPLY

The degree to which real GDP declines or increases depends on

the amount by which AD and AS curve shifts.
 Sources of Business cycle

• AGGREGATE DEMAND

• AGGREGATE SUPPLY

The degree to which real GDP declines or increases depends on

the amount by which AD and AS curve shifts.
 Sources of Business cycle

• AGGREGATE DEMAND

• AGGREGATE SUPPLY

The degree to which real GDP declines or increases depends on

the amount by which AD and AS curve shifts.
 CAUSES OF BUSINESS CYCLES

External factors
1. Inventions and innovation: Major changes in technology can
influence the business cycle. Usually technological changes
move the economy in a positive direction, but this is not always
so.
2. Wars and political events: The impact of such events on the
economy are very fact specific- in other words, difficult to
generalize about.
 GOVERNMENT AND THE
BUSINESS CYCLE

• In order to prevent the economy from

inflation and recession/depression, the
government often becomes involved in
efforts to try and stabilize the
economy.
• The government has two major tools to try and stabilize
the economy and achieve its goals: fiscal policy and
monetary policy.
 FISCAL POLICY
Fiscal policy is the taxing and spending
decisions that are made by the
President and Congress.
Fiscal policy actions of the government
fall into two general categories:
1. Raise or Lower Taxes
2. Increase or Decrease Government
Spending.
Example of PEPSI Business Cycle
 Expansion/Growth Phase

Launched in India in 1988

Consistent Growth.
Waves of optimism.
Highest point of Expansion.
Rise in profits, investment, sales,
employment etc.
 Expansion
RETAIL MARKET SHARE OF BEVERAGE PRODUCTS

Sports Drinks
Teas
2%
Bottled Water 3%
13%

Fruit Drinks
16%

Colas
66%
 Recession
Uncertain downfall.
Controversies.
Outcome- Decline in profits,
sales etc.
 Revival

Turning point from depression into

expansion.
A result of New Innovation.
Thank you!!!