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 Business Cycle

A business cycle is characterized by fluctuations in economics activity & has 2 phases (contraction & expansion) & 2 turning points (through & peak)

Key determinants of  business cycle:-

  • Real GDP
  • Real income
  • Employment
  • Industrial Production
  • Wholesale-retail sales


Automatic Stabilizer

Automatic stabilizers are built-in fiscal devices that ensures surplus in a recession & deficits during booms. Automatic stabilizers minimize the problem of proper timing. There are 2 main stabilizers:

  • Needs-tested spending: More money is paid out as more people become unemployed
  • Induced Taxes: People drop from the tax rolls during downturns & are added to tax rolls (or enter higher brackets) during booms. Corporate tax  collection is lower during economic downturns

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