8 Theories Of Business Cycles | Causes of Business Cycles

Several theories were offered to explain the causes of business cycles. The following are some of them 1. Climatic theory: This theory was stated by Prof. W. S. Jeveons. According to him, sun spots appear on the face of the sun. This affects rainfalls. As a result, agricultural production will suffer. Income of the agriculturists will fall. This fall in agricultural production will affect the demand for industrial goods. Thus, changes in climate are responsible for business cycles. 2. Psychological theory : This was stated by Prof. Pigou. According to …

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Characteristics And Phases Of Business Cycle

During the past hundred years if we study conditions of trade, we find ups and downs in the level of economic activity. These ups and downs in the economic activity are called trade cycles or business cycles. According to Keynes a business cycle is composed of good trade as well as bad trade. During the time of good trade, output, level of employment, prices and incomes of the people rises. During the time of bad trade output, level of employment, prices and incomes of the people fall. In other words, …

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Howtrey’s Monetary Theory Of Trade Cycle And Its Limitations

Howtrey’s Monetary Theory Of Trade Cycle: Prof. Hawtrey regards business cycle as purely a monetary phenomenon. According to him the basic cause of business cycles is the expansion and contraction of money. Bank credit plays an important role in business acitivity. Hawtrey states that business expansion starts when the bank lower the rate of interest on loans. Lower interest rates induce the businessmen to borrow more from the banks. According to Hawtrey businessmen borrow more from the banks and invest more money in the business. Production, employment and incomes increase. …

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What Are The Measures To Control Business Cycles

Business cycles are very harmful to the economy because they create economic fluctuations. During the period of prosperity, prices rise, leading to inflation. During depression there will be large scale unemployment. Prices fall and income will fall. Hence business cycles are not desirable. Measures To Control Business Cycles The following are some of the measures to control business cycles. 1. Monetary policy: Some economists advocated the monetary measure’s to control business cycles. The central bank can practice the monetary measures to control trade cycles. The Central. Bank uses both quantitaive …

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What Are The Consequences Of Business Cycles

Business firms are affected differently by business cycles based on the nature of their business. For the economy as a whole, the growth is not steady or smooth due to cyclical variations. The effects on business firms during the expansion phase differ from the effects in the contraction phase. During the expansion the firm demand increases quite rapidly. Price rises more quickiy than costs. As a result the profit margin rises. So manufacturers and Merchants generally feel happy during the expansion phase. Therefore, expansionary phase has a favourable impact on …

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Relationship Between Marginal Cost And Average Total Cost

Marginal cost and average cost are two important types of costs incurred by a firm in production process. The Marginal cost implies the additional cost incurred by a firm for producing one more unit of a commodity. Suppose a firm incurred Rs. 100 for producing 10 units. If it incurs Rs.107- for producing 11 units, the marginal cost of the 11th unit is Rs.7 (Rs. 107- Rs. 100= Rs. 7). Marginal cost is the change in the total cost due to the production of one more unit. Marginal cost always …

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Influence Of Fixed And Variable Costs On Average Total Costs

Influence of fixed and variable costs on average total costs: Total cost is the aggregate of fixed costs and variable costs. The average total cost is the aggregate obtained by dividing the total costs with the total number of units produced. It is also obtained by adding average fixed costs and average variable costs. The average fixed cost will be less when the level of production increases. The average variable costs will be less due to the influence economies of large scale production. When production reach a particular stage, the …

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Difference Between Fixed Cost And Variable Cost With Example

Cost of production implies the expenses involved in producing a commodity. Cost of production influences the price determination of commodity. It always implies the money costs only. These money costs are divided into two types namely Fixed costs and variable costs. Fixed costs : Costs which do not vary with the level of production are known as fixed costs. These costs are also known as supplementary costs or overhead costs. These costs are incurred by the producer irrespective of the changes in production. Even though production is stopped due to …

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Assumptions And Limitations Of Opportunity Cost In Economics

Opportunity costs : Prof. Wiser, an Austrian economist used this concept for the first time in Economics. Later on it was developed by several economists like Davenport, Knight, Wicksteed and Robbins. This concept has several names like Alternative cost, Transfer price or Transfer cost. This concept is based on the fundamental fact that resources are scarce and ends are unlimited. It is not possible for us to produce all the commodities due to this fundamental fact. If we choose the production of more Cotton, we have to reduce the cultivation …

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Nominal Costs Or Money Costs And Real Costs In Economics

Cost of production incurred includes several factors like rent, salaries and allowances, depreciation, interest on capital, rent for land etc. The costs are divided into three types, namely money costs, real costs and opportunity costs. Money costs : Money costs are also known as nominal costs and normal costs. They refer to the money payments made by a producer for producing goods. Money costs are further divided into two types namely Explicit costs and Implicit costs. Costs actually paid out by the producer are known as explicit costs. Costs paid …

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