Gujarat BoardEnglish MediumSTD 11 CommerceEconomicsDemand5 Marks
Question
Explain the difference between increase-decrease and expansion-contraction in demand.
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Answer
Introduction:
In any country the economic changes are occurred according to time duration.
Some changes are beneficial where some creates negativity in economy.
For making policy the study trade cycle is necessary.
Some economist called trade cycle as economic $($dynamic$)$ changes.
Meaning of Trade Cycle :
Different authors has given different following definitions :
According to Haberler, “Trade Cycle is an interval that embrace alternating periods of prosperity $($goods time$)$ and depression $($bad time$)$.”
According to Howtrey, “Trade Cycle are continuous phases of goods and bad changes occurring in the economy.”
Important phases $($stages$)$ of Trade Cycle :
There are mainly four phases of trade cycle:
Boom $($inflation or peak$)$ :
In this stage price and production increases.
The business are at top level so production and demand increase and profitability in economy also increase.
Producer increase production activity so capital investment and employment increase.
Production is seen at maximum level in the country.
The bank also increase the credit creation.
Recession $($Down-Swing$)$ :
At the end of the inflation there is a starting point of recession.
During peak time for profit purpose capital investment increases.
That increase the price of product but with that production expense increase.
Another side marginal productivity reduce at diminishing rate, so softness is seen in economy.
If demand reduce then it effect on new capital investment.
During peak time unproductive investment expenses increase but when price reduction start then in emergency production cost reduction can not be possible so it create loss situation, so production and employment also decrease.
Depression $($slow down in Recession/Regaining Possession$)$ :
This process is gradually put economy into the deep mine.
The reduction in demand increase supply and start reduction in price.
This price reduction, reduce capital investment and employment.
In future the assumption of price reduction also stop the demand in current market, it arise depression situation.
At this time duration people have purchasing power capacity but due to thinking of price reduction they are not ready to purchase the product.
The reduction in demand reduce capital investment and employment.
In this stage of depression production, employment and economic activities are at bottom level. People are in crisis.