Macro Economics Mid-Term Project

Group Members

Syed Arslan Saqib Roll Number 27

Hamza Ali Roll Number

Kashan Tarar Roll Number

Assignment: comparing Pakistan’s and Malaysia’s Export/ GDP
Import/Inflation/Poverty

Business Cycle
Definition
To describes the rise and fall in production output of goods and services in an economy and generally measured using the rise and
fall in the real gross domestic product or GDP adjusted for inflation is called business cycle.

Business cycle of Pakistan

The economy of Pakistan is the 24th largest in the world in terms of purchasing power parity (PPP), and 42nd
largest in terms of nominal gross domestic product. Pakistan has a population of over 212.2 million, giving it a
nominal GDP per capita of $1,357 in 2019, which ranks 154th in the world and giving it a PPP GDP per capita of
5,839 in 2019, which ranks 132th in the world for 2019. However, Pakistan's undocumented economy is estimated
to be 36% of its overall economy, which is not taken into consideration when calculating per capita income.
Pakistan is a developing country and is one of the Next Eleven countries identified by Jim O'Neill in a research
paper as having a high potential of becoming, along with the BRICS countries, among the world's largest economies
in the 21st century. The economy is semi-industrialized, with centers of growth along the Indus River. Primary
export commodities include textiles, leather goods, sports goods, chemicals, carpets and medical instruments.

Business Cycle Phases

There are four phases of business cycle

 Boom
 Recession
 Depression
 Recovery

Following are Detail of phases of Business Cycle

  BOOM
At the peak of the business cycle, the economy can be said to be “overheated.” Despite hiring additional
workers, the owner and crews of Normal Maintenance are working seven days a week and are still unable
to keep up with demand. They can’t work any harder or faster. As a result, the crews are exhausted and the
quality of their work is beginning to decline.

Indicators of Boom

Consumption
A fast growth of income consumption helps to rises real income and strong confidence and rush in houses ans
price and share prize

Demand and Capital Goods

A pickup in demand as capital goods such as business. It invests ans strong confidence and rush in houses and price
and share price

Unemployment
Many jobs create unemployment and it fails .due to unemployment it creates higher wages.

Import
Higher demand for import causes the economy. It runs a larger trade deficit because it cannot supply all the goods
and services which consumer are buying.

Government tax revenue

They spend more in Companies which make large profit. This gives government money to increase spending in
areas. It rises as people earn.

 RECESSION
As the economy begins to contract, business begins to slow down for Normal Maintenance. They find that they are
caught up on work and they aren’t getting so many phone calls. The owner is able to reduce his labor costs by
cutting back on overtime and eliminate working on the weekends. When the phone does ring, homeowners are
asking for bids on work not just placing work orders. Normal Maintenance loses out on several jobs because their
bids are too high.

Indicators of recession

1. Unemployment
The unemployment rises because of recession and mostly job vacancies are available and people looking
for work. In unemployment economy slows, businesses get worried about further.
2. Low profit
A rise in the number of business failure and business announcing lower profit and investment. DURING an
economic expansion, profit go up but during a recession the companies of some profit go slow down.

3. Export
A drop in the value of export and import of goods and services , The supply demand on demand on
demand unaffected by recession in county . Most firm produce expot for domestic product . The fall in
domestic product fall in prices
4. Government tax revenue
Government tax revenue are falling are welfare benefit spending is rising.people are unveiling to invest.
The government needs to make sure that is stable political environment and it is very important that
government provides legal farm work.

5. Real GDP
When the real GDP growth rate turned negative it could be a signal of recession. But somtime it will be
turn positive in the next time. The economy is in recession due to some reasons

 DEPRESSION
During the trough phase, the economic activities of a country decline below the normal level. In this phase, the
growth rate of an economy becomes negative. In addition, in trough phase, there is a rapid decline in national
income and expenditure. In this phase, it becomes difficult for debtors to pay off their debts.

Indicators Depression

1. Gold standard
Economics studies have indicated that just as the downturn was spread worldwide by the rigidities of the gold
standard. Every major currency left the gold standard during depression Britain was first to do so,

2. Breakdown of international trade

Many economist have argued that the sharp decline in international trade after 1930 helped worsen the
depression, especially for countries significantly depends on foreign trade. While foreign trade was a small part of
overall economic activity in the U.S.

3. Monetary policy
A depression on the scale of that 1929 could not happen exactly the way it did before.Cental bank reground the
world , including the U.S Federal reserve are more aware of the importance of monetary policy

4. Economies contraction
A depression is an extended recession that has years, not quarters of economic contraction. Its more severe than a
recession of a depression is so great that the effect of the great depression lasted for decades after it ended.

 Recovery
 Indicators of recovery

1. Employment

2. Higher production

3. GDP

4. Demand

5. Inflation

Business cycle Theories

There are lots of theories about business cycle but we discus about two of them all. Those two are very important all
off those business cycle theories. That two theories are

o Sunset Theory
o Hawtrey’s Monetary Theory
 o Under consumption Theory
o Ove investment Theory

Sunset Theory
This is perhaps the oldest theory of business cycles. Sun-spot theory was developed in 1875 by Stanley Jevons. Sun-
spots are storms on the surface of the sun caused by violent nuclear explosions there. Jevons argued that sun-spots
affected weather on the earth.

Since economies in the olden world were heavily dependent on agriculture, changes in climatic conditions due to
sun-spots produced fluctuations in agricultural output. Changes in agricultural output through its demand and input-
output relations affect industry. Thus, swings in agricultural output spread throughout the economy.

Other earlier economists also focused on changes in climatic or weather conditions in addition to those caused by
sun-spots. According to them, weather cycles cause fluctuations in agricultural output which in turn cause instability
in the whole economy. Even today weather is considered important in a country like India where agriculture is still
important.

In the years when due to lack of monsoon there are drought in the Indian agriculture, it affects the income of farmers
and therefore reduces demand for the products of industries. This causes industrial recession. Even in USA in the
year 1988 a severe drought in the farm belt drove up the food prices around the world. It may be further noted that
higher food prices reduce income available to be spent on industrial goods.

Hawtrey’s Monetary Theory

An old monetary theory of business cycles was put forward by Hawtrey. His monetary theory of business cycles
relates to the economy which is under gold standard. It will be remembered that economy is said be under gold
standard when either money in circulation consists of gold coins or when paper notes are fully backed by gold
reserves in the banking system.

According to Hawtrey, increases in the quantity of money raises the availability of bank credit for investment. Thus,
increasing the supply of credit expansion in money supply causes rate of interest to fall. The lower rate of interest
induces businessmen to borrow more for investment in capital goods and also for investment in keeping more
inventories of goods.

Thus, Hawtrey argues that lower rate of interest will lead to the expansion of goods and services as a result of more
investment in capital goods and inventories. Higher output, income and employment caused by more investment
induces more spending on consumer goods. Thus, as a result of more investment made possible by increased supply
of bank credit economy moves into the expansion phase. Secondly, the rising prices reduce the real value of idle
money balances with the people which induces them to spend more on goods and services. In this way rising prices
sustain expansion for some time.

However, according to Hawtrey, the expansion process must end. He argued that rise in incomes during the
expansion phase induces more expenditure on domestically produced goods as well as on imports of foreign goods.
He further assumes that domestic output and income expand faster than foreign output.As a result, imports of a
country increase more than its exports causing trade deficit with other countries. If exchange rate remains fixed,
trade deficit means there will be outflow of gold to settle its balance of payments deficit.

The inflow of gold would lead to the expansion of money supply and consequently availability of bank credit for
investment will increase. With this, the economy will recover from depression and move into the expansion phase.
Thus, the cycle is complete. The process, according to Hawtrey, will go on being repeated regularly.

Comparing GDP graph of Pakistan and Malaysia

Graphs

Comparing GDP graph of Pakistan and Malaysia

Pakistan’s GDP Malaysia’s GDP
PAK GDP GDP
6 6.0

5.5
5

5.0
4

4.5
3
4.0

2
3.5

1 3.0
2010 2011 2012 2013 2014 2015 2016 2017 20182010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Highest and Lowest reason of GDP (Pakistan’s)

Highest and Lowest reason of GDP (Malaysia’s)

Comparing Import graph of Pakistan and Malaysia

Pakistan’s Import Malaysia’s import

 PAK Import Import
25 16

14
20
12

15 10

8
10
6

5 4

2
0
0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
-5
2010 2011 2012 2013 2014 2015 2016 2017 2018

Highest and Lowest reason of Import (Pakistan’s)

Highest and Lowest reason of Import (Malaysia’s)

Comparing Inflation graph of Pakistan and Malaysia

Pakistan’s Inflation Malaysia’s inflation
 PAK Inflation Inflation
20 8

7
16
6

5
12
4

8 3

2
4
1

0
0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
2010 2011 2012 2013 2014 2015 2016 2017 2018

Highest and Lowest reason of GDP (Pakistan’s)

Highest and Lowest reason of GDP (Malaysia’s)

Comparing Export graph of Pakistan and Malaysia

Pakistan’s Export Malaysia’s Export
PAK Export Export
16 12

12
10
8
8
4
6
0

-4 4

-8 2

-12
0
-16
2010 2011 2012 2013 2014 2015 2016 2017 2018 -2
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Highest and Lowest reason of Export (Pakistan’s)

Highest and Lowest reason of Export (Malaysia’s)

Comparing Poverty graph of Pakistan and Malaysia

Pakistan’s Poverty Malaysia’s poverty
PAK poverty Poverty
12 16

10 14

8 12

6 10

8
4

6
2
4
0
2
-2
2010 2011 2012 2013 2014 2015 2016 2017 2018 0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Highest and Lowest reason of Poverty (Pakistan’s)

Highest and Lowest reason of Poverty (Malaysia’s)