Theories of trade cycle ppt. 8 Theories of International Trade: Explained, PPT Available 2022-12-27

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The trade cycle, also known as the business cycle, is a pattern of fluctuations in economic activity that is characterized by periods of expansion and contraction. These fluctuations can have significant impacts on economic indicators such as employment, production, and prices. There have been various theories proposed to explain the underlying causes of the trade cycle and to identify potential ways to mitigate its negative effects.

One of the most influential theories of the trade cycle is the monetary theory, which suggests that changes in the money supply and credit conditions play a key role in driving economic fluctuations. According to this theory, an expansion in the money supply can lead to increased spending, which can drive up demand for goods and services and lead to an economic expansion. Conversely, a contraction in the money supply can lead to a decline in spending and a slowdown in economic activity.

Another theory of the trade cycle is the real business cycle theory, which suggests that fluctuations in the trade cycle are driven by changes in technology and productivity. According to this theory, technological innovations and improvements in productivity can lead to increased output and economic growth, while declines in productivity can lead to economic downturns.

A third theory of the trade cycle is the Keynesian theory, which emphasizes the role of aggregate demand in driving economic fluctuations. According to this theory, changes in the level of aggregate demand can lead to changes in production and employment, and thus influence the trade cycle. The Keynesian theory suggests that government intervention, such as fiscal policy or monetary policy, can be used to stabilize the trade cycle and mitigate its negative effects.

Overall, there are many different theories that attempt to explain the underlying causes of the trade cycle and to identify potential ways to mitigate its negative impacts. While no single theory has been able to fully explain the trade cycle, a combination of these theories can provide a more comprehensive understanding of the forces at play in driving economic fluctuations.

Top 6 Theories of Trade Cycle

theories of trade cycle ppt

Meaning of Trade Cycle: A trade cycle refers to fluctuations in economic activities specially in employment, output and income, prices, profits etc. Drawback of innovation theory The full employment assumption is unrealistic. There are bottlenecks and shortages. But more factors cannot be used in the consumer goods sector as compared to the capital goods sector. In fact, causation also has run in other direction. They are provided by the reducing the lending rate of interest and bypurchasing securities These encourage borrowings on the part of merchants andproducers. HAWTREYS MONETARY THEORY BOOM PHASE They place more orders with producers.

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4_Trade blog.sigma-systems.com

theories of trade cycle ppt

According to Keynes, the marginal productivity of capital increases with the increase in profits of consumer goods. The first approximation starts with the economic system in equilibrium with every factor fully employed. A nation can only grow when other nations do expenses or import goods. When the demand grows, that country should move production factories to a developing country to meet demands at less cost. An increase in MEC will create more employment, output and income leading to prosperity. The theory exaggerates the importance of bank credit as a means of financing development. This leads to the atmosphere of prosperity in the country and monetary over-investment on factors spreads the boom.

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Trade theory

theories of trade cycle ppt

Product prices are equal to both average and marginal costs. Thus the phase of expansion starts. But Hawtrey believes that an expansion of credit leads to a boom. Trade cycles are the outcome of economic development in a capitalist society. Psychological theory contd PESSIMISTICbusinessman puts less investment and lessproductionRate of employment and rate of profitdecreasesSupply exceeds the demand so price falls. Example- America has started production of any new product that is introduction phase after some time company has reached into a growth phase where the demand has increased and starts export.

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Trade Cycle: Meaning, Features and Theories

theories of trade cycle ppt

Similarly, contraction of credit cannot bring about a depression. Thus, fluctuations are due to optimism leading to prosperity and pessimism resulting depression. Drawback Based on only agro based theory Good or bad crop can only be one factor ofdepression or expansion but they cannotaccount for all the features The trade cycle occur at regular intervalsof 10. Money supply changes due to changes in rates of interest. In recent years, all firms resort to plough back of profits for expansion. But they do not react favourably during the depression phase because traders expect a further reduction every time the interest rate is reduced.

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Product cycle theory(1).ppt

theories of trade cycle ppt

As the process of expansion continues, cost of production increases, due to scarcity of factors of production. ADVERTISEMENTS: Falling demand, prices and incomes are the signals for depression. Wages also go down. . The impulse for innovation is reduced and eventually comes to an end. This sudden disposal of goods leads to fall in prices and liquidation of marginal firms.

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Theories of trade cycle

theories of trade cycle ppt

Further, as admitted by Hicks himself, depression may start even before reaching the full employment ceiling due to monetary factors. Rate of investment MarginalRate of efficiency ofinterestcapital Supply priceProspectiveof capital yieldgoodsEntrepreneurial expectations 24. There will be competition for factors of production between capital goods and consumption good industries. Employment and income of the factors of production in capital goods industries will increase. It is defined as thefluctuation of business activity between successive crises. The economy is said to be growing at the warranted rate when real investment and real saving are taking place at the same rate. America starts to produce goods in developing countries like India for mass production and starts importing goods from India to meet demand.


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Theories of trade cycle

theories of trade cycle ppt

Drawbacks Considers only psychological views ofbusinessman Ignore other factors 16. There is rise in wages, prices, profits and interest. The process of revival and recovery becomes cumulative and leads to prosperity. Hayek has suggested that the volume of money supply should be kept neutral to solve the problem of cyclical fluctuations. This is what has happened historically.

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8 Theories of International Trade: Explained, PPT Available

theories of trade cycle ppt

Thus consumption lags behind income, and the multiplier is treated as a lagged relation. Thus changes in the money stock are a consequence as well as independent cause of changes in economic activity. It depends on factors which bring about the recovery of the MEC. If a country has an advantage in the production of two commodities, then compare the efficiency of both goods. HAWTREYS MONETARY THEORY GROWTH PHASE The expanded phase of the trade cycle starts when banks increasecredit facilities. Sunspots appear on the face of the sun. Forced savings increase with the fall in consumption which are invested for the production of capital goods.

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