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Case study - departmental profit and loss statement

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  • Jones Hanungu Munang'andu Zambia Statistical studies of cycles Modern economic history has recorded a number of periods of difficult times, often called depressions, during which the business economy was marked by sudden stock market declines, commercial bankruptcies, bank failures, and mounting unemployment. Such crises were once looked upon as pathological incidents or catastrophes in economic life, rather than as a normal part of it. The notion of a “cycle” implies a different view. The following examples represent some of the attempts theorists have made to explain and predict business cycles. The Juglar cycle The first authority to explore economic cycles as periodically recurring phenomena was the French physician and statistician Clément Juglar, who in 1860 identified cycles based on a periodicity of roughly 8 to 11 years. Scholars who developed Juglar's approach further distinguished three phases, or periods, of a typical cycle: prosperity, crisis, and liquidation. Subsequent analysis designated the years 1825, 1836, 1847, 1857, 1866, 1873, 1882, 1890, 1900, 1907, 1913, 1920, and 1929 as initial years of a downswing (i.e., the beginning of the “crisis” phase). The so-called Juglar cycle has often been regarded as the true, or major, economic cycle, but several smaller cycles have also been identified. Close study of the interval between the peaks of the Juglar cycle suggests that partial setbacks occur during the expansion, or upswing, and that there are partial recoveries during the contraction, or downswing. According to this theory, the smaller cycles generally coincide with changes in business inventories, lasting an average of 40 months. Other small cycles result from changes in the demand for and supply of particular agricultural products such as hogs, cotton, and beef. Kondratieff waves Cycles of greater duration than the Juglar cycle have also been studied. For example, the construction industry was found to have cycles of 17 to 18 years in the United States and 20 to 22 years in England. Measuring longer-term business cycles involves the study of long waves, or so-called Kondratieff cycles, which were named for the Russian economist Nikolay D. Kondratyev. His examination of the major Western countries during the 150 years from 1790 to 1940 identified three periods characterized by slow expansions and contractions of economic activity, each averaging 50 years in length: 1. 1792–1850 Expansion: 1792–1815 23 years Contraction: 1815–50 35 years 2. 1850–96 Expansion: 1850–73 23 years Contraction: 1873–96 23 years 3. 1896–1940 Expansion: 1896–1920 24 years Contraction: 1920–40 20 years Only these three Kondratieff waves have been observed. Some students of business cycles have analyzed them by statistical methods, in the hope of finding regularities that are not immediately apparent. One speculative theory has held that the larger cycles were built up from smaller ones. Thus, two seasonal cycles would produce a two-year cycle, two of which would produce a four-year cycle; two four-year cycles would become an eight-year, or Juglar, cycle, and so on. The hypothesis is not widely accepted. Patterns of economic depression and upswing Cycles of varying lengths are closely bound up with economic growth. In 19th-century Germany, for example, upswings in total economic activity were associated with the growth of the railroad, metallurgy, textile, and building industries. Periodic crises (such as those outlined above in the discussion of the Juglar cycle) brought slowdowns in growth. The crisis of 1873 led to a wave of financial and industrial bankruptcies; recovery started in 1877, when iron production ceased to fall, and by 1880 a new upswing was under way. The recession of 1882 was less severe than the previous one, but a slump that began in 1890 led to a serious depression, with complaints of overproduction. The year 1890 was one of financial crisis also in England and the United States. The British banking house of Baring Brothers failed, partly because of a revolution in Argentina. English pig-iron production fell from 8.3 million tons in 1889 to 6.7 million tons in 1892, and unemployment increased. That depression might have been less severe but for the international financial crisis, especially intense in the United States, where in 1893 a stock market panic led to widespread bank failures. The recession of 1900 was followed by an unusually vigorous upsurge in almost all the Western economies. U.S. pig-iron production increased by more than 150 percent during the expansion, which lasted until 1907; building permits more than doubled; and freight traffic rose by more than 50 percent. Prices rose more and more rapidly as the U.S. economy approached full employment.
    2014-04-10 15:04:38

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