Presentation Transcript

Nature of trade cycles :

Nature of trade cycles TIME PRESENTED TO:- Miss Chitwan Bhutani PRESENTED BY:- Priyanka Sharma, Ridhi Sood, Sukhwinder Singh, Jagmohan Parmar

Slide 2:
Trade cycles are Ups and Downs or fluctuations in the level of Economic Activity or in production which extend over to a period of several months or years. DEFINITIONS:"That business cycle is a fluctuation in employment, output and prices". -By HANSEN "A trade cycle is composed of periods of good trade characterized by rising prices and low unemployment percentage, with periods of bad trade characterized by following prices and high unemployment percentages." -By J.M.KEYNES

Expansion :
Expansion Expansion is characterized by high capital investment in basic industries as a result high stocks, high prices, high profits and over-full employment. This stage is the peak of trade cycle and it is also termed as BOOM stage. The longest sustained period of prosperity occurred in U.S.A. between 1923 and 1929.

RECESSION :
RECESSION In this stage most business enterprises fail, prices collpase and confidence is shaken. Building construction slows down and unemployment increases. There is fall in income, expenditure, demand, prices and profits. The recession will have cumulative effect on the working of the economy. U.S.A. experienced recession in 1957-1958.

Characteristics Of Recession :
Characteristics Of Recession

DEPRESSION :
DEPRESSION During this period business activity in the country will be much below the normal level. Recession leads to depression when there is a general decline in economic activity. It is characterized by shortfall in production ,mass unemloyment, fall in prices, low wages, contraction of credit, a high rate of business failures and an atmosphere of all round pessimism. The general decline in economic activity leads to a fall in bank deposits. Credit expansion stops because the business community is not willing to borrow. Bank rate falls considerably. The U.S.A. experienced 2 longest depressions in the history i.e. 1873-1879 and 1929-1932.

CHARACTERSTICS OF depression :
CHARACTERSTICS OF depression

Slide 10:
During depression shortage of goods is experienced. In result investment increases. The price and wages increases. The recovery may take place due to following reasons: New government expenditure. Exploitation of new sources of energy. Innovations. Investment in new areas. Changes in technologies of production.

CHARACTERSTICS OF Recovery :
CHARACTERSTICS OF Recovery

Keynesian theory of trade cycles :

Keynesian theory of trade cycles According to Keynes Trade cycles are caused due to fluctuations in the volume of investment. MEC:- The percentage yield earn on an additional unit of capital

Explanation of Keynesian cycle :

Explanation of Keynesian cycle Expansion:-High Marginal Efficiency Of Capital Increase in rate of investment Increase in output, employment and income Downturn:Fall in MEC due to two reasons:- first, as more capital goods are being produced steadily, the current yield on them declines. second, at the same time the current costs of new capital goods rise due to shortages of materials and labour. Increase in liquidity preference Increase in rate of interest Disinvestments

Continued.. :
Recovery:-Recovery depends on factors, which bring about the recovery of the MEC. Length of Depression period depends upon the length of life of capital goods. Optimism take place of pessimism. MEC increases and economy enters into Expansion phase Continued..

effects of cyclical fluctuations on business firms :

effects of cyclical fluctuations on business firms

effects on business firms :

effects on business firms

Remedies :
Remedies SPECIFIC REMEDIES Securing frequent turnover. Carefully drawing minimum & maximum stock limits. Prompt price reduction during depression. Maintenance of volume of sales. GENERAL REMEDIES Close contacts with wholesalers and manufacturers. Regular study of business conditions. Coordination of buying programs. Comprehensive long-range programs.

Methods to control trade cycles :

Methods to control trade cycles