jaiib-ie-and-ifs-paper-1-module-b-unit-5-business-cycles

  • kamal sir
  • 6/13/2023

JAIIB Paper 1 (IE and IFS) Module B Unit 5: Business Cycles (New Syllabus) 

IIBF has released the New Syllabus Exam Pattern for JAIIB Exam 2023. Following the format of the current exam, JAIIB 2023 will have now four papers. The JAIIB Paper 1 (Indian Economy & Indian Financial System) includes an important topic called “Business Cycles”. Every candidate who are appearing for the JAIIB Certification Examination 2023 must understand each unit included in the syllabus. In this article, we are going to cover all the necessary details of JAIIB Paper 1 (IE and IFS) Module B ECONOMIC CONCEPTS RELATED TO BANKING Unit 5: Business Cycles
Aspirants must go through this article to better understand the topic, Money Supply and Inflation and practice using our Online Mock Test Series to strengthen their knowledge of Banker Customer Relationship. Unit 5: Business Cycles

Business Cycles

  • The term Business cycle refers to economy-wide fluctuations in production or economic activity over several months or years.
  • Business Cycle is also known as Economic Cycle.
  • Business Cycle simply means the whole course of business activity which passes through the phases of prosperity and depression.
  • A business Cycle is not a regular, predictable, or repetitive phenomenon like the swing of the pendulum of a clock. Its timing is random and, to a large degree, unpredictable.

Characteristics of a Business Cycle:

  • A business cycle is synchronic: The upward and downward movements tend to occur at almost the same period in all industries. The wave of prosperity or depression in one industry will soon generate a wave in other industries.
  • A business cycle show a wave like movement: The period of prosperity and depression can be alternatively seen in a cycle.
  • Cyclical fluctuations are recurring in nature: The various phases are repeated. A boom is followed by depression and the depression again is followed by boom.
  • There can be no indefinite depression or eternal boom period
  • Business cycles are pervasive in their effects.
  • The up and down movements are not symmetrical. The Downward movement is more sudden and violent than the upward movement.

Phases of Business Cycle:

A business cycle is identified as a sequence of four phase. Boom, Recession, Depression and Recovery

 Boom:

  • During the Boom phase production capacity is fully utilized and also products fetch an above normal price which gives higher profit.
  • In Boom period, consumption will be decreased as prices are going up.
  • The Demand is more or less stagnant or it even decreases.

A boom has the following important economic characteristics:

  • An accelerated and prolonged increase in demand
  • Demand peaks to levels that exceed sustainable output/production levels
  • Economy heats up and a demand-supply lag becomes apparent
  • Market forces mismatch (i.e., demand and supply disequilibrium) and tend to create a situation in which inflation begins to rise
  • The economy may suffer fundamental problems such as a shortage of investible capital, decreased savings, a declining standard of living, and the emergence of a sellers’ market.

Recession:

  • A downward tendency in demand is observed. The supply exceeds demand
  • Desire for liquidity increases all around.
  •  Producers are compelled to reduce price so that they can find money to meet their obligations.
  • This Phase of the business cycle is known as the Crisis.

The following are the major characteristics of recession, 

  • There is a general decline in demand as economic activity slows down
  • Inflation remains low or shows further signs of falling
  • Employment falls/unemployment rises
  • Industries resort to price cuts to stay in business.

Depression:

  • Underemployment of both men and materials is a characteristic of this phase. General Demand falls faster than production
  • Volume of Production will be reduced.
  • The demand for the bank credit is at its lowest which results in idle funds.
  • The interest rates are decline regime.

Some of the primary features of depression are as follows: 

  • An extremely low aggregate demand in the economy causes activity to slow down.
  • Inflation is comparatively lower
  • Employment avenues begin to close, forcing the unemployment rate to rise rapidly
  • To keep the business running, production houses resort to forced labour cuts or retrenchment (to reduce production costs and remain competitive in the market), and so on.

Recovery:

  • Depression phase done not continue indefinitely.
  •  Wages will be paid low.
  •  Prices are at the lowest, the consumers, who postponed their consumption expecting a still further fall in price, now start consuming.
  • As demand increases, the stocks of goods become insufficient.

The recovery business cycle may exhibit the following major economic characteristics: 

  • An increase in aggregate demand, which must be accompanied by an increase in the level of production
  • The production process expands and new investments become appealing
  • As demand rises, inflation rises as well, making borrowing cheaper for investors As production rises, new employment avenues are created and the unemployment rate begins to fall and  so on

Module B Unit 5 Business cycle (Ambitious Baba)

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