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Pages : 250;Paperback;
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A business cycle is a swing in total national output, income and employment. It usually has two phases: recession and expansion. It is difficult to predict the duration and timing of business cycles. During expansion, production increases in all sectors of the economy and so do employment opportunities. Some of the forces that come into play during expansion leads to recession. The general rise in costs relative to prices is an important factor leading to recession.
Recession ultimately leads to depression and there is substantial fall in the production of goods and services and the level of employment. During recovery, there will be more employment opportunities and income will go up which in turn will lead to more demand for goods and service. There will be an upward movement in the price, thus encouraging investment and growth in the economy. There are many theories which explain the cyclical behavior of the economy. One of the earliest such theories is the multiplier and accelerator theory. Aggregate demand and aggregate supply curves explain business cycles better. Shifts in aggregate demand causes business cycle fluctuations in output, employment and prices. The economy suffers recession or even depression when shifts in aggregate demand cause downturns in business. When there is an upturn in economic activities, it would lead to inflation. Other theories concentrate on the behavior of investors, cycles in public expenditure and the behavior of money supply. But no single theory has successfully explained and predicted business cycles. Economic fluctuations can be now predicted with the help of econometric forecasting models.
There are a number of indicators which show cyclical movements in an industrial economy. Business forecasters in developed economies keep a close watch on these indicators. The rate of unemployment is one of the key indicators of the economic conditions prevailing in an economy.
Unemployment arises from a deficiency in effective demand. Unemployment is considered a sign of economic inefficiency. Employment level must be raised to increase the output and give a boost to the economy. Unemployment can be of three types: frictional, structural and cyclical. Full employment does not mean zero unemployment. It is the level of employment that results when the rate of unemployment is normal. Full employment incorporates the idea that at a given time there is some natural rate of unemployment in an economy.
The nature of unemployment in India is mostly structural and disguised. Structural unemployment can be eliminated only by introducing certain radical measures. In less developed countries, there is widespread disguised unemployment. Disguised unemployment can be tackled by transferring surplus labor from one sector to some other sector. This will lead to an increase in national output and the country's capacity to save would also increase.
Characteristics Of Business Cycles
Theories Of Business Cycles
Demand Induced Cycles
Forecasting Business Cycles
The Concept of Full Employment
Nature of and Trends in Unemployment in India