IX Business Cycles and Policies1
url:general-observations-of-business-cycles.aspx
Title: General Observations Of Business Cycles, Managerial Economics Assignment Help, Homework Help
Description: One of the fundamental factors which affect business is business-cycles. Fluctuation and change rather than constancy is observed to be the characteristic feature of business activities…
Keywords: general observations, business cycles, capitalism, pre capitalist stage, commercial revolution, economic activity, managerial economics, assignment help, homework help, sample homework
GENERAL OBSERVATIONS OF BUSINESS CYCLES
One of the fundamental factors which affect business is business-cycles. Fluctuation and change rather than constancy is observed to be the characteristic feature of business activities. In dealing with such business cycles, the following points must be remembered at the outset:-
(1)Business cycles are associated with the emergence of capitalism. In the pre-capitalist stage, in the early years of Commercial Revolution there is evidence of some sort of cycles=optimum in trade leading to boom and .suddenly bursting, the case like that of the South Sea Bubble; but they cannot be regarded as true cycle. Business cycles as the predominant feature of capitalist system started only in the later -part of the 19th century.
(2)Not only are; business cycles the outcome of the capitalist development, but they are cycles around a trend and the long-run trend is upward. Thus economic growth and business cycles are found interrelated.
(3)Physical output and prices move generally in the same' direction during cyclical fluctuations If ph. social output increases, price increases, and vice versa. This fact has an important bearing on understanding the cause of business cycles. It is implicit that business cycles are caused by changes on the demand side. Had it been caused by changes on the supply side, there would have been a fall in prices, with an increase in output.
(4)Finally, it is observed that fluctuations in total income are not very violent. Investment fluctuates more violentlythan consumption (income). In fact, Keynes established that the marginal propensity to consume remains more or less stable; it is only investment that fluctuates due to speculation and expectation.
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url:general-features-of-business-cycles.aspx
Title: General Feature Of Business Cycles, Managerial Economics Assignment Help, Homework Help
Description: Explanations regarding general features of business cycles. W. Mitchell others a brief definition: A trade cycle consists of "aggregate fluctuations in economic activity…
Keywords: business cycles,business efficiency, fluctuation in employment, economic activity, managerial economics, assignment help, homework help, sample homework
GENERAL FEATURES OF BUSINESS CYCLES
W. Mitchell others a brief definition: A trade cycle consists of "aggregate fluctuations in economic activity", which has four interlinked components-
(1) Fluctuations in employment,
(2) Fluctuations in output,
(3) Fluctuationsin price,
(4) Fluctuations in money value of produce (income).
These fluctuations are described variously: 'capital proceeds by which’s and jerks'; 'business is characterized by boom and slump'; 'there is ebb and flow in the system'; so on and so forth.
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url:classification-of-business-fluctuations.aspx
Title: Classification Of Business Fluctuations, Managerial Economics Assignment Help, Homework Help
Description: Explanation regarding common classification of business fauctuation which includes secular trends, seasonal fluctuation, cyclical fluctuation, random fluctuation etc
Keywords: business fluctuation, secular trends, seasonal fluctuation, cyclical fluctuation, random fluctuation, managerial economics, assignment help, homework help, sample homework
Common Classification Of Business Fluctuations
The most common classification of business fluctuations is as
Follows:
(a) Secular trends
(b) Seasonal fluctuations
(c) Cyclical fluctuations
(d) Miscellaneous random fluctuations.
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url:phases-of-business-cycle.aspx
Title: Phases Of Business Cycle, Managerial Economics Assignment Help, Homework Help
Description: Business cycles have different phases. Schumpeter states that Prosperity and Recession constitute the upper half of the cycle i e. upswing…
Keywords: business cycle phases, managerial economics, assignment help, homework help, sample homework
Business Cycles Phases
Business cycles have different phases. Schumpeter states that-
(i) Prosperity and Recession constitute the upper half of the
Cycle i e. upswing
(ii) Depression and Recovery constitute the lower half i.e. downswing. These phases are illustrated in the diagram
In the prosperity or expansion phase, the output, employment and income I row at a rapid rate so that the peak of boom is reached. In the recession phase employment output and income decrease at a slow rate, in the depression or contraction phase, employment, output and income decrease at a rapid rate. In the recovery or revival phase the rate of growth is at a slow pace. These phases move in cyclical, wave-like fashions so they are called tradecycles.
Normally one phase leads to another; but there is a missing link. Depression cannot lead by it, elf to recovery, and it is here that there is need for anti-cyclical policy.
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url:charecterstics-of-trade-cycle-pigou-points.aspx
Title: Characteristics Of Trade Cycle, Pigou Points, Managerial Economics Assignment Help, Homework Help
Description: Trade cycle is generalized in character; it is synchronic in operation so that fluctuations in one sector affect fluctuations in another sector of the national economy…
Keywords: Trade cycle, piogou points, managerial economics, assignment help, homework help, sample homework
Characteristics Of Trade Cycles
Pigou has pointed cut the following characteristics of trade cycles:-
(l) A trade cycle is generalized in character; it is synchronic in operation so that fluctuations in one sector affect fluctuations in another sector of the national economy.
(2) A trade cycle is synchronic all over the world; it may assume an international character. The mechanism of international trade results in "the transmission of the trends of economic activity of one country into another."
(3)Trade cycles are similar in their cyclical nature of periodicity; but they differ in intensity. One trade cycle is not an exact replica of the other. Trade cycles are all members of same family, but they are not twins
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url:standard-types-of-business-cycles.aspx
Title: Standard Types Of Business Cycles, Managerial Economics Assignment Help, Homework Help
Description: Business cycles are not figments of imagination; they are based on empirical evidence. The evidence is found by statistical times-series data. A statistician may observe the following 1ypes of cycles…
Keywords: business cycle, standard types, managerial economics, assignment help, homework help, sample homework
SOME STANDARD TYPES OF BUSINESS CYCLES
Business cycles are not figments of imagination; they are based on empirical evidence. The evidence is found by statistical times-series data. A statistician may observe the following 1ypes of cycles:-
(1) There is the standard type of cycles with duration of 7 to 1! Years. Income reaches its peak within an interval of 7 to I) years. Yuglar first studied these cycles. Hence it is called Yuglar type. Business cycle theories generally explain it,
(2) A Soviet statistician discovered another type of cycle with duration of 48 to 6() yrs. unfortunately this Kondratieff an cycles did not come true. According to this the peak of boom was to be 1"920 and on-ward in the following period there was to be the downswing of the capitalist cycle. But this prediction did not come true.
Kitchens conceived of same shorter cycles with duration of 2 to 4' years after the Second World War, these kitchen's cycles became very popular.
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url:theories-of-business-cycles.aspx
Title: Theories Of Business Cycle, Causes Of Fluctuation, Managerial Economics Assignment Help, Homework Help
Description: The phenomenon of business cycles has given rise to a. bewildering multiplicity of theories. In reviewing the earlier theories, Haberler suggested following classification…
Keywords: fluctuation, theories of business cycles, managerial economics, assignment help, homework help, sample homework
THEORIES OF BUSINESS CYCLES; CAUSES OF FLUCTUATIONS
The phenomenon of business cycles has given rise to a. bewildering multiplicity of theories. In reviewing the earlier theories, Haberler suggested following classification;-
Business Cycle Theories
- Theories which .explain cycles through exogenous factors
Like climate. Jevons’s 'sun- spot' theory is a representative example here.
- Theories which explain cycles through endogenous factors.
Monetary factors Non-monetary factors Here the difference is only a matter of' emphasis. Monetary theories have some crude reference to non-monetary elements, and non-monetary theories have some reference to monetary factors. Following Haberler. 'We will concentrate here on endogenous factors. We will however group the theories as pre-Keynesian and. post- Keynesian.
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url: pre-keynesian-theories.aspx
Title: Pre-Keynesian Theories, Monetary Explanation,Managerial Economics Assignment Help, Homework Help
Description: Explanation regarding Pre-Keynesian theories, The cycles in the capitalist economy could not have occurred without elastic money supply…
Keywords: pre Keynesian theories, ester, purely monetary phenomenon,managerial economics, assignment help, homework help, sample homework
PRE-KEYNESIAN THEORIES
The Monetary Explanation
Ester has enumerated five propositions on which the monetary theory of the cycle rests;-
(1) The cycles in the capitalist economy could not have occurred without elastic money supply. .
(2) The money supply of all countries equipped with modern banking systems, is elastic, i.e. capable of expansion and contraction.
(3) The normal behavior of the banking system is to have elastic money supply.
(4) The expansion and contraction of money supply do account for cumulative expansion and contract ion of business activities. This cumulative elasticity’s are sufficient to account for trade cycles.
(5) Thus a trade cycle is a "purely monetary phenomenon" produced by variation in money supply.
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url:hawtreys-monetary-theory1.aspx
Title: Hawtreys Monetary Theory, Managerial Economics Assignment Help, Homework Help
Description: Hawtrey regards trade cycle as a purely monetary phenomenon, because general demand itself is a monetary phenomenon. This general demand depends on the changes …
Keywords: hawtreys monetary theory, managerial economics, assignment help, homework help, sample homework
Hawtrey's Monetary Theory: Part 1
Hawtrey is the most celebrated exponent of this purely monetary theory of cycles.
Hawtrey regards trade cycle as "a purely monetary phenomenon", because general demand itself is a monetary phenomenon. This general demand depends on the changes ill: consumers' outlay". Change in "consumer' outlay" is determined by the quantity of money. Hence if the BON of money is stabilized,are can be no cycle. But the 'normal behavior' of the banking. Andfinancial institutions do not permit it. Let us now examine 'e mechanism of change in money supply, causing changes in consumers' outlay and hence a change in money demand causing cycles.
Hawtrey thinks that the upswing is brought about by the expansion of credit. The Liberalization of credit system is set in by' cheap money policy like reduction of discount rate. Keynes might have thought that this policy would affect economic activity through its effect on long-term rate of interest. But Hawtrey thinks. That the policy operates through its effect on the behavior of the dealers-'stockists'-. Hawtrey tackles the question from the point of working capital' and thus differs from Keynes fundamentally. The stockists hold stock of raw materials, and semi finished goods. b t they do not produce. The stockists finance the holding of their stocks by depending on 'borrowed finance' from the banks, if the rate of interest is reduced. then it means that the cost of holding. Stocks is reduced. The stockists therefore, decide to hold more stocks. They place more orders with manufacturers to produce more. Thus initial demand is transmitted to the manufactures. In producing: more, the manufacturers get additional income which pays them to employ more factors. Higher income results in higher effective demand of the income-recipients. If the increase in demand is just matched by additional production i.e., if the Say's law is valid, then. the traders do not get additional stocks to hold; and therefore, the stockists place more and more orders with the manufactures. This means that business is booming towards prosperity. This is the virtuous expansionary process of the upswing.
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url:hawtreys-monetary-theory2.aspx
Title: Hawtreys Monetary Theory, Managerial Economics Assignment Help, Homework Help
Description: This cumulative process would have been indefinite. Had the' easy, liberal credit policy been continued, But it is exactly what is not done. Some external brackets operate. As cheap money policy is followed…
Keywords: hawtreys monetary theory, liquid cash, money policy, stockiest, cash outflow, cost of holding stock, managerial economics, assignment help, homework help, sample homework
Hawtrey's Monetary Theory: Part 2
This cumulative process would have been indefinite. Had the' easy, liberal credit policy been continued, But it is exactly what is not done. Some external brackets operate. As cheap money policy is followed, there takes place a large outflow of cash from the bank to the public. Due to the availability of liquid cash, prices start rising; inflationary spiral begins; the economy experiences deficits in her balance of trade and payments. This adverse balance of payments will mean a drain of foreign exchange from the central bank. AU these symptoms will mean, in operational term, a fall in banks cash ratio below conventional level. So the banks will now reverse their process. They will undertake dear money policy. And as soon as the rate of interest rises due to dear money policy, the cost of holding stocks will increase. The stockists will cancel orders with manufactures. Less "consumers' outlay" will imply less demand. The downswing has thus started. In the process recession will lead to depression. But after sometimes, this contraction process will come to an end. Recovery begins 'because of anti- cyclical policies.' The continuation of dear money policy will ultimately result in the favorable balance of payments position. The cash reserves will increase and banks will again find it profitable to frame a liberal credit policy. So again there will be movement towards prosperity.