Business cycle

Business cycle

A diagrammatical representation of a time series that shows what happens to the value of domestic output, GDP, of the economy overtime

Amplitude

Measured peak to peak or trough to trough

Recession

Classified by negative economic growth for 2 or more consecutive quarters

Exogenous causes of business cycle

Outside market economy

Can’t control

Crises

Natural disaster

Politics

Endogenous causes of business cycles

Deliberate action

Policy

Monetary

Psychological

Keynesian: Believe market should be stabilised

Demand Pull inflation

Price increases from consumer spending

Cost-push inflation

By suppliers chasing profits

Face economic threats

Recovery

Low and stable interest rates

Gov spending continues to rise

Boom

Rising interest rates

Increased tax revenue and moderate government spending

Slowdown

High interest rates with possible deduction

Recession

Aggressive reduction of high interest rates

Increased government expenditure

SA Monetary Policy Commitee

SARB meets 6 times a year to determine repo rate (7%)

Expansionary repo rate

Banks interest rates will increase

Decreased consumption

Less business loans

Contractionary repo rate

Increased demand

Lagging indicators

GDP changes after business cycle

• Number of hours worked in construction

• Number of commercial vehicles sold

• Investment in machinery and equipment

• Cement sales in tons

Coincident indicators

GDP and business cycles change at the same times

• Real GDP

• Retail sales

• Unemployment figures

Leading indicators

GDP changes before business cycle changes

• New cars sold

• Business confidence index

• Building plans approved