7. economic flactuations and unemployment (2)

8/8/2019 7. Economic Flactuations and Unemployment (2)

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ECONOMIC FLUCTUATIONS&

UNEMPLOYMENT

M. PRASHANTHI

MANNA

MAJUMDER

NITIN KR. GUPTA

MANISH MITTAL


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EFFICIENT OPERATION

OF

AN ECONOMY

REAL OUTPUT FULL EMPLOYMENT PRICE STABILITY

ECONOMY

MACROECONOMICSICFAI BUSINESS SCHOOL


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Fluctuations in the Economic

Growth

Growth Rate Of NNPfc

-8

-6

-4

-2

0

2

4

6

8

1951

-52

1961

-62

1971

-72

1981

-82

1991

-92

Year

GrowthRate

eries1

Year Growth Rate

1951-52 2.8

1956-57 -2

1961-62 6.4

1966-67 -5

1971-72 0

1976-77 2

1981-82 -6

1986-87 2.2

1991-92 -1

1996-97 5



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Major Variables Recovery Boom Recession Depression

Industrial production Gradual increase Rapid increase Decline Rapid decline

Commodity prices -do- -do- -do- -do-

Cost of production -do- Increase rapidly, but

slower than rise in prices

of goods & services

Gradual decline Rapid decline but slower

than commodity prices

Profits Satisfactory level High Gradual decline Negligible profit or losses

Investment Replacement of existing

capital equipment

High Fall slowly Falls rapidly

Employment Gradual increase Rapid increase Starts falling Falls rapidly

Wage rate Improvement Rapid increase but less

than rise in prices of

goods & services

Starts falling Falls rapidly than the

commodity prices but

less

BUSINESS CYCLES & CHANGES IN ECONOMIC STRUCTURE



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Major Variable Recovery Boom Recession Depression

Bank credit Liberal loans and

satisfactory

demand for

advances

Liberal loans and high

demand for

advances

Starts falling Falls rapidly

Bank reserves Improvement Rapid increase Suffer a setback Falls rapidly

Discount rates A little improvement -do- Gradual decline -do-

Speculation activity Gradual increase At high level Minimum possible Hardly any

Inventory stocks Gradual decline Very little Gradual increase High level

Business failure Smaller in number Hardly any Smaller in number Large in number

Business expectation Optimism coupled with

cautious decision

making

Highly optimistic Pessimistic with cautious

decision making

Highly pessimistic

BUSINESS CYCLES & CHANGES IN ECONOMIC STRUCTURE



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Theories to Explain Cyclical Behavior of Economy

Multiplier Theory

Accelerator Theory

Behavior of inventories

Cycles in public expenditure

Behavior of money supply

Fluctuations in India are due to

Performance in agricultural sector

Behavior of public investmentAd hoc or unpredictable changes

THEORIES OF BUSINESS CYCLE



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Leading IndicatorsTheir turning point occurs before those of total economic activity.

Gives advance warning about the turning point in the economic activity

Lagging IndicatorsThey follow the business cycle

BUSINESS CYCLE INDICATORS



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Rate of unemployment key indicator of economy Unemployment arises out of the deficiency of the

effective demand.

It is percentage of persons in the existing workforce who

are not employed.

Number of persons unemployed

Number in civilian labor force

EMPLOYMENT FLUCTUATIONS



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UNEMPLOYMENT

FRICTIONAL STRUCTURAL CYCLICAL

TYPES OF UNEMPLOYMENT



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Defined as the level of employment that results when therate of unemployment is normal.

Does not mean zero unemployment

Rate of unemployment measurement problemsOver looks two problems

People being excluded even though they would preferto be working

People being included who are not seriously seekingemployment

People who are actively seeking employment are notcounted as unemployed

Method of classifying part time workers.

Classified as unemployed who are not seriously seekingmarket employment

FULL EMPLOYMENT



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Nature and TrendMostly structured and disguised

Experienced the cyclical unemployment in last twodecades

ClassificationUrban unemployment

Industrial unemployment

Educated unemployment

Rural unemployment

Open unemployment

Disguised unemployment

UNEMPLOYMENT IN INDIA



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Estimation

By planning commission

By National Sample Survey Organization (NSSO)

Usual status unemployment

Weekly status unemployment

Daily status unemployment




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Unemployment in urban areasOpen and undisguised

Employee guarantee programDrought Prove Area Program

National rural employment program

Jawahar Rozghar Yojana

Implementation problemsLack of resource to finance these programs

Choice of appropriate works to be doneLack of charity regarding the organization of these programs




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MACROECONOMICS

THANK YOU

ICFAI BUSINESS SCHOOL

7. economic flactuations and unemployment (2)

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