Aartee Mishra is teaching live on Unacademy Plus
aily Lecture Series Ramesh Singh's) A brief Summary of Indian Economv Inflation and Business Cycle-D indi unacadeny By Aartee Mishra
lam Aartee Mishra Graduated from Delhi University, Topper in all my semesters, Pursuing P.G and preparing for CSE. 2 Years of teaching experience of General Studies for competitive examination Have been teaching on Unacademy Plus
Boom >A strong upward fluctuation in the economic activities is called boom.79 As economies try to recover out of the phases of slowdown, recession and depression at times the measures taken by the governments as well as the private sector might put economic activities as such which the economic systems fail to digest. This is the phase of the boom. The major economic traits of boom may be listed as given below: I. an accelerated and prolonged increase in the demand Il. demand peaks up to such a high level that it exceeds sustainable output/production levels IlI. the economy heats up and a demand-supply lag is visible IV, the market forces mismatch (i.e., demand and supply disequilibrium) and tend to create a situation where inflation start going upward V. the economy might face structural problems like shortage of investible capital, lower savings, falling standard of living, creation of a sellers' market.
Boom The phase of recovery is considered good for the economy and it reaches the stage of boom which is considered better. But the boom has its negative side also Boom is usually followed by price rise. The symptoms of overheating are as follows: 1. There is a downturn in the aggregate demand on overall fall in the demand 2. as demand falls, the level of production (output) in the economy also falls 3. as producers cut down their production levels, new employment opportunities are not created-thus employment growth rate falls; 4. as demand keeps on falling, usually producers start cutting down their labour force to adjust their overhead expenditure and the cost of production (labour-cut is not 'forced' here but, 'voluntary')-resulting in increase in the unemployment rate dangerous stage of depression remains the logical follow up and lending. 5. if the government fails to rescue the economy from the phase of recession, the 6. the rate of inflation always remains at lower levels-discouraging new investments
Recession This is somewhat similar to the phase of 'depression,-we may call it a mild form of depression -fatal for economies as this may lead to depression if not handled with care and in time The financial crises which followed the US 'sub-prime crisis' in almost the whole Euro-American economies has basically brought in 'severe recessionary' trends there. Major traits of recession, to a great extent, are similar to that of 'depression' Depression may be summed up as follows: 1. there is a general fall in demand as economic activities takes a downturn 2. inflation remains lower orland shows further signs of falling down 3. Employment rate falls/unemployment rate grows 4. Industries resort to 'price cuts' to sustain their business.
Recession What may a government do to rescue the economy from the phase of recession? The usual remedies are given below: 1. Direct and indirect taxes should be cut down, so that the consumers have higher disposable incomes (income after paying direct tax, i.e., income tax) on the one hand and the goods should become cheaper on the other hand, thus there is hope that the demand might pick up 2. The burden of direct taxes, especially the income tax, divdend tax, interest tax are slashed to enhance the disposable income (i.e, income after direct tax payment) 3. Salaries and wages should be revised by the government to encourage general spending by the consumers (as the Government of India implemented the recommendations of the fifth pay commission without much deliberation in 1996-97) 4. Indirect taxes such as custom duty, excise duty (cenvat), sales tax, etc., should be cut 5. The government usually goes on to follow a cheap money supply policy by slashing 6. Tax breaks are announced for new investments in the productive areas, etc. down so that produced goods reach the market at cheaper prices down interest rates across the board and the lending procedure is also liberalized
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