Business

cycles

Cindy&Jing

What is business cycles？

• The term business cycle (or

economic cycle) refers to a

phenomenon that a cyclical

economic expansion and

economic contraction cycle in

the economy.

What is business cycles？

• These fluctuations are often measured

using the growth rate of real Gross

Domestic Product (GDP) .

• The business cycles consistent four

stages.

Four stages

• Stage One – Start-up/Creation

• Stage Two – Growth

• Stage Three – Maturity

• Four – Recession/Decline

Four stages

Causes of business cycles

• External Causes

• Internal Causes

A. sunspot theory

It is said that the changes of cyclical naturally sunspots will affect the cycle of climate change, which would affect the agricultural harvest, and harvest the abundance of agriculture will impact the whole economy.

B. the political cycle theory

• Political cycle theory

thought the business

cycles caused by the

government to the cyclical

nature of the decision-

making (mainly in order to

solve the cycle of inflation

and unemployment).

Causes of business cycles

• External Causes

• Internal Causes

A. a purely monetary theory

• Pure monetary

theory that the

money supply and

monetary flow

directly determines

the fluctuations of

the name of

national income.

B. over-investment theory

• Theory of over-

investment thought

the business cycles

caused by excessive

investment.

C. under-consumption theory• The under-

consumption theory

thought economic

recession caused by

the demand for

consumer goods can

not keep up with

community growth of

consumer goods

production.

D. Psychological theory

• The theory thought that

the business cycles

depend on the

investment, and

investment size depends

mainly on the owners`

expectations for the

future.

Cu

Cures for the business cycles

“Liquidate labor,

liquidate stocks,

liquidate the

farmers,

liquidate real

estate”

Andrew William Mellon (March 24, 1855 – August 27, 1937)

America became officially involved in World War II. Did World War II

really end the Great

Depression, though?

Whatever the case is

for deficit spending as

a cure, war spending is

clearly much weaker

because the spending

is not for productive

purposes, but for

destructive ones, no

matter how justified the

war might be.

government intervention

government intervention

• Monetary policy intervenes by controlling the money supply through

the actions of the central bank – in the United States that’s the

Federal Reserve.

• Regrettably, government intervention is capable of postponing

declines in the business cycle by propping the economy up with

cheap credit.

• But the longer these naturally occurring declines are put off, the

bigger the bust and destruction when it eventually collapses.

Attempting to halt gravity, and deny the existence of the business cycle, is arrogant and futile.

For there’s only one cure for a depression…that is, a depression. Let it happen. It’s the responsible

alternative.

Conclusion

causes cures

A. sunspot theoryLiquidate labor, stocks,

the farmers, and real estate

B. the political cycle theory

A. a purely monetary theo

B. over-investment theory

C. under-consumption theory

D. Psychological theory

Doing nothing•External causes

•Internal causes

References

• Cures for the Great Depression.The Great Depression

Online. From

http://www.greatdepressiononline.com/cures-for-the-

great-depression.htm

• Causes and Cures. America’s Great Dpression.

Statistics Retrieved on December 28, 2007 from

http://www.amatecon.com/gd/gdcandc.html

• http://en.wikipedia.org/wiki/Business_cycle

• http://www.buzzle.com/articles/four-stages-of-business-

cycle.html