Instrument To Control Business Cycle

Business Cycle

1. ddghdfhfdfthhhhhhh INSTRUMENT TO CONTROL BUSINESS CYCLE Presentation By:-GURU PRASAD.N Guided By:- Mervin Felix Caleb

2. BUSINESS CYCLE A BUSINESS CYCLE is a fluctuation in the Gross Domestic Product(GDP) around its long-term natural growth rate. It explains the expansion and contraction in economic activity that an economy experiences over time. A Business cycle is completed when it goes through a single boom and single contraction in sequence.

3. History:- The  first  authority to explore  economic cycles  as periodically recurring phenomena was the French physician and statistician Clément Juglar, who in 1860  identified cycles  based on a periodicity of roughly 8 to 11 years. Clément Juglar  (15 October 1819 – 28 February 1905) was a French doctor and statistician . Juglar qualified as a doctor in 1846. His medical training gave him an interest in population and demography, but it appears to have been the economic disturbances of 1848 that attracted him to the subject of economic fluctuations and crises. In 1851 he began contributing to the  Journal des Économistes , and in 1860 he submitted an essay,  Des Crises commerciales  (published as a book, 1862; “Business Crises”), to the Academy of  Moral  and Political Science; it won the Bordin Prize. Juglar was one of the first to analyze  business cycles  as fully as possible on the basis of available time series data. His use of statistics in predicting turning points in cycles was so accurate that a later  economic cycle  theorist,  Joseph Schumpeter , wrote of him as being “among the greatest economists of all time.” He paid particular attention to the behaviour of bank balances, which he regarded as a barometer of commercial affairs. Clément Juglar

4. Wesley Clair Mitchell  (August 5, 1874 – October 29, 1948) was an American  economist  known for his empirical work on  business cycles  and for guiding the  National Bureau of Economic Research  in its first decades . Mitchell was born in  Rushville, Illinois , the second child and oldest son of a Civil War army doctor turned farmer. In a family with seven children and a disabled father with an appetite for business ventures "verging on rashness" a lot of responsibility fell on the oldest son. Despite these challenges, Wesley Clair went to study at the  University of Chicago  and was awarded a PhD in 1899. [3] Mitchell's career as a researcher and teacher took the following course: instructor in economics at Chicago (1899–1903), assistant professor (1903–08) and professor (1909–12) of economics at the  University of California, Berkeley , visiting lecturer at  Harvard University  (1908–09), lecturer (1913) and full professor (1914–44) at  Columbia University . In 1916 he was elected as a  Fellow  of the  American Statistical Association . [4] He was one of the founders of the  New School for Social Research , where he taught for a time between 1919 and 1922, and of the  National Bureau of Economic Research  (1920), where he was director of research until 1945. Wesley Clair Mitchell  

5. Arthur F. Burns Arthur Frank Burns  (August 27, 1904 – June 26, 1987) was an American  economist . His career alternated between academia and government. From 1927 to the 1970s, Burns taught and researched at  Rutgers University ,  Columbia University , and the  National Bureau of Economic Research . [1] Burns was the chairman of the U.S.  Council of Economic Advisors  from 1953 to 1956 under  Dwight D. Eisenhower 's presidency. In 1969, he originated the post of Counselor to the President, under  Richard Nixon . He served as the  Chairman of the Federal Reserve  from 1970 to 1978 and as  Ambassador to West Germany  from 1981 to 1985. Arthur F. Burns

6. Stages of business cycle 1.expansion 2.peak 3.recission 4.depression 5.trough 6.recovery

7. Causes of business cycle Interest rates Fluctuation in Investments Macroeconomic policies Supply of Money Technology Shocks Natural factors Population Expansion

8. Instrument to control business cycle :- There are mainly 3 measures are:- 1.Monetary Policy. 2.Fiscal Policy. 3.Direct Controls.

9. Monetary Policy:- It mainly concerned with Money Supply and Bank Credit and Interest rates. It is a Method to Control Business fluctuations operated by Central Bank of Country. Monetary Policies Chosen methods of credit control such as: 1.Bank rate 2.Reserve ratio 3.Open-market operations etc … Monetary inflation, leading to higher income and profits, strengthens the boom conditions. Similarly, Monetary deflation reinforces the downswing in the economic activities leading to depression. So, the Monetary policy should be adopted in an anti-cyclical way.  To control a recession or depression, the central bank follows an easy or cheap monetary policy by increasing the reserves of commercial banks. It reduces the bank rate and interest rates of banks.

10. Fiscal Policy :- Monetary policy alone is not capable of controlling Business Cycle. It is highly effective for controlling excessive Government expenditure, Personal consumption expenditure. (Boom) On the other hand it helps in increasing in Government expenditure, Personal consumption expenditure. (Depression) spending, and taxation, borrowing.. These three instruments have to be effectively utilized to control the severity of boom or the difficulties of depression. During the periods of recession and depression, the government should reduce substantially the taxes and leave more money in the pockets of individuals for spending and investment.

11. Direct Controls :- The aim of direct controls is to ensure proper allocation of resources for the purpose of price stability. They are meant to affect strategic points of the economy. They affect particular consumers and producers.  They are in the form of rationing licensing, price and wage controls, export duties, exchange controls, quotas, monopoly control, etc. They are more effective in overcoming shortages arising from inflationary pressures . Their point of success mainly depends upon the existence of an efficient and honest administration. They are mostly used in emergencies like war, crop failures and in hyper inflation .

12. Some More :- Price control :  To control inflation or rising prices, price control measures should be introduced. That means prices must he kept under check. Price support :  During the period of depression prices begin t fall. This has cumulative effect. So it is harmful. To avoid this, price support policy should be adopted. Minimum prices should be provided. If prices fall below a minimum level, government purchases all the goods at support prices in the market. Socialistic measures:  Socialists recommended replacement or capitalist economy by a socialistic system of production and distribution. When this is done, there would be a completely planned economy and all fears of over-investment and over production would be brought to an end. Reduction of economic inequalities :  Inequalities of income should be reduced. This can be done by raising the wage levels and ensuring more equitable distribution of national income by increased taxation. This will reduce inequalities in the distribution of income and wealth and thereby will remove the “under consumption tendency. State control over investment :  The government should control private investment in order to prevent over improvement and thereby the boom. Price Adjustment Policy: Those who regard market price variations as major causes of instability advocate a policy of encouraging price flexibility as one of the important weapons of stabilisation . They argue that it would curb profit inflation reduce the duration of recessions and inflation by reducing the disparities between controlled and uncontrolled prices.   .

13. Continued   Automatic Stabilisers : In this case the economists have suggested the introduction of a number of automatic stabilisers or (built in stabilisers ) to deal with the business cycle. An automatic stabiliser or (built-in- stabiliser ) is an economic stock-absorber that helps smooth the cyclical business fluctuations of its own accord, without requiring deliberate action on the part of the government. International Measures Control of Business Cycle:- Today, every country has trade relations with the rest of the world. If there is inflation or deflation in one country, it can be easily carried to other countries. The example of great depression can be given. Business cycle is an international phenomenon and it should be tackled on international level. Different measures to control business cycle fluctuations have been suggested by some well-known economists these are: 1. Control of International Production 2.International Bill Stock Control 3.International Investment Control Reorganization of Economic System:- s ome economists suggest that there should be complete reorganization of the whole economic system to control of business cycle fluctuation. The capitalistic system of production should be replaced by the socialistic system of production. In socialistic economy, there are few chances of cyclic fluctuations. In 1930, when all capitalist countries of the world were suffering from depression, it was only socialist countries which were free from such crisis. Anti-cyclical budgeting Anti –Cycling Budgeting:- The budgetary policy of the government should be in tune with the measures already indicated to combat the instability created by business cycle. During times of depression, a policy of deficit budgeting should be adopted. This will increase the flow of income in the economy. During upswing, surplus budgeting should be adopted. Thus, the budgeting should be done in anti-cyclical method.

14. Conclusion :- In the end it can be said that there is no single method which can control cyclical fluctuations. Therefore, it can be suggested that all methods be used simultaneously. Because monetary policy is easy to apply but it is less effective. Next, the fiscal measures are effective and better than monetary method but it is difficult to control and operate. Therefore, it can be a point to study that the right remedy for the trade cycles has not been found as yet. 

15. Reference :- https://corporatefinanceinstitute.com/resources/knowledge/economics/business-cycle/ https://www.toppr.com/guides/business-economics/business-cycles/causes-of-business-cycles/ https://accountlearning.com/solutions-to-problems-of-trade-cycle-control-of-business-cycle/ https://www.economicsdiscussion.net/business-cycles/how-to-control-the-business-cycle-managerial-economics/13495 https://www.knowledgiate.com/measures-control-business-cycles/

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