Description
A primer on business cycle.It covers Michele, Keynes, Schumpeter business cycles also.
INTRODUCTION
Features Of Business Cycle
? Business cycle occurs periodically ? Business cycle are synchronic.
Business Cycles
Michele Business Cycle
Keynes Business Cycle
Schumpeter Business Cycle
Hawtrey’s Monetary Theory of Business Cycles
• Effect of increase in supply of money • Expansion phase of Business • Effect of decrease in supply of money • Contraction phase of Business • Recurring nature of Business cycle • Importance of the theory
Under-Consumption Theory
• Very old theory dated back to the 1930’s
• Distinction between Rich & Poor • Income inequalities in expansion phase • Decline in demand & recession phase • Contribution of Karl Marx • Critical Appraisal
Over-Investment Theory
? Concepts:
?
?
Natural Rate of Interest ? Rate at which savings equals investment ? Reflects rate of return on capital Money Rate of Interest ? Rate at which banks gives loans
? Theories ? Hayek’s Monetary Version of Over-investment Theory ? Wicksell’s Over-investment Theory
Hayek’s Monetary Theory
Monetary forces cause fluctuations in investment
Trade Cycle
Wicksell’s Over-investment Theory
• Fluctuations caused by innovation
• Expansion – lower money rate of interest • Recession – investment exceeds savings • Another set of innovations and the cycle repeats • Appraisals
• Fluctuations in investment are prime cause of BC • No reasons why changes in investment are often
Keynes’s Theory of Business Cycle
? Change in level the of aggregate effective demand will
bring about fluctuations in the level of income, output and employment ? Fall in demand – Recession ? Rise in demand – Expansion ? Factors affecting demand
? Total expenditure of consumer
? Entrepreneurs on investment
Methods To Control Business Cycle
? Preventive Measures
? Curative Measures ? Government Policies ? Cyclical Pricing
Govt. Policies to Control Inflation & Recession
Monetary Policy
Fiscal Policy
Quantitative
Qualitative
Restrain Govt Spending
Increase Taxes
Bank rate variations
Open market operations
Varying Reserve Ratio
Selective Credit Control
doc_464923728.pptx
A primer on business cycle.It covers Michele, Keynes, Schumpeter business cycles also.
INTRODUCTION
Features Of Business Cycle
? Business cycle occurs periodically ? Business cycle are synchronic.
Business Cycles
Michele Business Cycle
Keynes Business Cycle
Schumpeter Business Cycle
Hawtrey’s Monetary Theory of Business Cycles
• Effect of increase in supply of money • Expansion phase of Business • Effect of decrease in supply of money • Contraction phase of Business • Recurring nature of Business cycle • Importance of the theory
Under-Consumption Theory
• Very old theory dated back to the 1930’s
• Distinction between Rich & Poor • Income inequalities in expansion phase • Decline in demand & recession phase • Contribution of Karl Marx • Critical Appraisal
Over-Investment Theory
? Concepts:
?
?
Natural Rate of Interest ? Rate at which savings equals investment ? Reflects rate of return on capital Money Rate of Interest ? Rate at which banks gives loans
? Theories ? Hayek’s Monetary Version of Over-investment Theory ? Wicksell’s Over-investment Theory
Hayek’s Monetary Theory
Monetary forces cause fluctuations in investment
Trade Cycle
Wicksell’s Over-investment Theory
• Fluctuations caused by innovation
• Expansion – lower money rate of interest • Recession – investment exceeds savings • Another set of innovations and the cycle repeats • Appraisals
• Fluctuations in investment are prime cause of BC • No reasons why changes in investment are often
Keynes’s Theory of Business Cycle
? Change in level the of aggregate effective demand will
bring about fluctuations in the level of income, output and employment ? Fall in demand – Recession ? Rise in demand – Expansion ? Factors affecting demand
? Total expenditure of consumer
? Entrepreneurs on investment
Methods To Control Business Cycle
? Preventive Measures
? Curative Measures ? Government Policies ? Cyclical Pricing
Govt. Policies to Control Inflation & Recession
Monetary Policy
Fiscal Policy
Quantitative
Qualitative
Restrain Govt Spending
Increase Taxes
Bank rate variations
Open market operations
Varying Reserve Ratio
Selective Credit Control
doc_464923728.pptx