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causes of business cycle ppt

Thus, the introduction of an innovation leads to a spurt in economic activity and a period of prosperity. Thus, changes in climate are responsible for business cycles.2. Causes of Business Cycle are very common in a capitalistic economy. Then prices will fall. Innovation theory: According to Schumpeter, innovations cause business cycles. Hence the demand for goods will be less than supply.

Psychological theory : This was stated by Prof. Pigou. This affects rainfalls.

Monetary theories : According to Hawtrey and Hayek the monetary factors are responsible for business cycle.

It will lead to expansion of business and prosperity. There are no set causes for business cycles as well. On this view, the interval be-tween the troughs of severe depressions is a major cycle, so that some major cycles may include only one business cycle while others include two or more. Many business people carry on businss with bank credit. But in capitalistic society the majority of the people are poor.

The most critical is confidence in the future.

Another way to prevent getting this page in the future is to use Privacy Pass. Several theories were offered to explain the causes of business cycles. Thus, according to Keynes business cycles are caused by fluctuations in the maginal efficiency of capital and in the volume of investment.8.

Monetary theories : According to Hawtrey and Hayek the monetary factors are responsible for business cycle. 5] Affect all Departments.

Over saving or under Consumption theory: This theory was stated by Malthus, Hobson etc.

Banks expand credit prices rise. Finally it leads to depression. Keynes in his seminal work ‘General Theory of Employment, Interest and Money’ made an important contribution to the analysis of the causes of business cycles. So it is nearly impossible to predict or prepare for these business cycles. According to him, sun spots appear on the face of the sun. Marginal efficiency of capital means expected rate of profit from a new unit of capital.

Please consider supporting us by disabling your ad blocker8 Theories Of Business Cycles | Causes of Business Cycles

If in any year, weather is good the output of agricultural sector will goes upward. Hicks theory: Keynes theory takes multiplier effect only into account. During a period of recession or depression many workers lose their jobs and as a result large-scale unemployment, which causes loss of output that could have been produced with full employment of resources, come to prevail in the economy. Population Growth Rate. Production, employment and incomes of the people increase.

But the effect of an innovation gradually dies and the economic activity takes a downward turn. As a result, agricultural production will suffer. After a limit they adopt restrictive credit policy. Production and employment will fall, leading to the depression. Innovations increases the demand for capital. They cannot make effort to purchase more of goods. When the Marginal efficiency of capital is high, investment, employment and income will increase. over investment is responsible for business cycles.4. This tendency of business activity to fluctuate regularly between prosperity and depression is called Trade Cycle. But banks cannot go on providing more and more credit. Many business people carry on businss with bank credit. It is an important factor which can cause economic activities. Completing the CAPTCHA proves you are a human and gives you temporary access to the web property.If you are on a personal connection, like at home, you can run an anti-virus scan on your device to make sure it is not infected with malware.If you are at an office or shared network, you can ask the network administrator to run a scan across the network looking for misconfigured or infected devices. The conclusion of critics of Real Business Cycle theory is that Fluctuations in productivity do not cause the business cycle, but are caused by it.

This will increase production. According to this theory, changes in the psychology of the business people are responsible for business cycles. Over investment or Over production theory: According to this theory, business cycles emerge due to over investment.

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