Simplified Economics & Finance Discussion Forum

This thread is started with the purpose of collective learning in the disciplines which are a very important part of any management and economics program. Though these are two highly specialized subjects and are regarded as the most important fact…

Would like to start with a very interesting and important topic of economics... "Business Cycle"

The term business cycle (or economic cycle) refers to economy-wide fluctuations in production, trade and economic activity in general over several months or years in an economy organized on free-enterprise principles.

The business cycle is the upward and downward movements of levels of GDP (gross domestic product) and refers to the period of expansions and contractions in the level of economic activities (business fluctuations) around its long-term growth trend.

These fluctuations occur around a long-term growth trend, and typically involve shifts over time between periods of relatively rapid economic growth (an expansion or boom), and periods of relative stagnation or decline (a contraction or recession).

Business cycles are usually measured by considering the growth rate of real gross domestic product. Despite being termed cycles, these fluctuations in economic activity can prove unpredictable.

A very interesting and advanced version of Business Cycle -

@Fin.wiz i read in newspaper that detroit filed for bankrupty today, how can a city file for bankrupty and can it happen in india and indian states too?

I would suggest everybody who wants to learn about Finance and Economics to straightaway create a profile on Coursera and start with the Introductory and Basic courses....I will keep you updated in my other thread...

Keep an eye on this course - This is the best course for any person from a non-commerce background...I am taking this one and let me tell you Prof. Gautam Kaul is the best Dude in the Business of Finance Globally...

will Detroit be able to overcome ????

Giant Of Finance: John Maynard Keynes

If ever there was a rock star of economics, it would be John Maynard Keynes. Keynes shares his birthday, June 5th, with Adam Smith and he was born in 1883, the year communist founder Karl Marx died. With these auspicious signs, Keynes seemed to be destined to become a powerful free market force when the world was facing a serious choice between communism or capitalism. Instead, he offered a third way, which turned the world of economics upside down. In this article, we'll examine Keynes' doctrine and its impact.

The Cambridge Seer

Keynes grew up in a privileged home in England. He was the son of a Cambridge economics professor and studied math at university. After two years in the civil service, Keynes joined the staff at Cambridge in 1909. He was never formally trained in economics, but over the following decades he quickly became a central figure. His fame initially grew from accurately predicting the effects of political and economic events.His first prediction was a critique of the reparation payments that were levied against the defeated Germany after WWI. Keynes rightly pointed out that having to pay out the cost of the entire war would force Germany into hyperinflation and have negative consequences all over Europe. He followed this up by predicting that a return to the prewar fixed exchange rate sought by the chancellor of the exchequer, Winston Churchill, would choke off economic growth and reduce real wages. The prewar exchange rate was overvalued in the postwar damage of 1925, and the attempt to lock it in did more damage than good. On both counts, Keynes was proved right.

A Big Miss, But a Great Rebound

Keynes was not a theoretical economist: he was an active trader in stocks and futures. He benefited hugely from the Roaring '20s and was well on his way to becoming the richest economist in history when the crash of 1929 wiped out three-quarters of his wealth. Keynes hadn't predicted this crash, and was among those who believed a negative economic event was impossible with the Federal Reserve watching over the U.S. economy. Although blindsided by the crash, the adaptable Keynes did manage to rebuild his fortune by buying up stocks in the fire sale following the crash. His contrarian
investing left him with a fortune of around $30 million at his death, making him the second richest economist in history.

The General Theory

Many others fared far worse in the crash and the resulting depression, however, and this is where Keynes' economic contributions began. Keynes believed that free market capitalism was inherently unstable and that it needed to be reformulated both to fight off Marxism and the Great Depression. His ideas were summed up in his 1936 book, "The General Theory of Employment, Interest and Money". Among other things, Keynes claimed that classical economics - the invisible hand of Adam Smith - only applied in cases of full employment. In all other cases, his "General Theory" held sway.

Inside the General Theory

Keynes' "General Theory" will forever be remembered for giving governments a central role in economics. Although ostensibly written to save capitalism from sliding into the central planning of Marxism, Keynes opened the door for government to become the principal agent in the economy. Simply put, Keynes saw deficit financing, public expenditures, taxation and consumption as more important than saving, private investment, balanced government budgets and low taxes (classical economic virtues). Keynes believed that an interventionist government could fix a depression by spending its way out and forcing its citizens to do the same, while smoothing futures cycles with various macroeconomic techniques.

Holes in the Ground

Keynes backed up his theory by adding government expenditures to the overall national output. This was controversial from the start because the government doesn't actually save or invest as business and private business do, but raises money through mandatory taxes or debt issues (that are paid back by tax revenues). Still, by adding government to the equation, Keynes showed that government spending - even digging holes and filling them in - would stimulate the economy when businesses and individual were tightening budgets. His ideas heavily influenced the New Deal and the welfare state that grew up in the postwar era.

The War on Saving and Private Investing

Keynes believed that consumption was the key to recovery and savings were the chains holding the economy down. In his models, private savings are subtracted from the private investment part of the national output equation, making government investment appear to be the better solution. Only a big government that was spending on behalf of the people would be able to guarantee full employment
and economic prosperity. Even when forced to rework his model to allow for some private investment, he argued that it wasn't as efficient as government spending because private investors would be less likely to undertake/overpay for unnecessary works in hard economic times.

Macroeconomics: Magnifying and Simplifying

It is easy to see why governments were so quick to adopt Keynesian thinking. It gave politicians unlimited funds for pet projects and deficit spending that was very useful in buying votes. Government contracts quickly became synonymous with free money for any company that landed it, regardless of whether the project was brought in on time and on budget. The problem was that Keynesian thinking made huge assumptions that weren't backed by any real world evidence.For example, Keynes assumed interest rates would be constant no matter how much or how little capital was available for private lending. This allowed him to show that savings hurt economic growth - even though empirical evidence pointed to the opposite effect. To make this more obvious, he applied a multiplier to government spending but neglected to add a similar one to private savings. Oversimplification can be a useful tool in economics, but the more simplifying assumptions are used, the less real-world application a theory will have.

The Theory Hits a Rut

Keynes died in 1946. In addition to "The General Theory", he was part of a panel that worked on the
Bretton Woods Agreement and the International Monetary Fund(IMF). His theory continued to grow in popularity and caught on with the public. After his death, however, critics began attacking both the macroeconomic view and the short-term aims of Keynesian thinking. Forcing spending, they argued, might keep a worker employed for another week, but what happens after that? Eventually the money runs out and the government must print more, leading to inflation.This is exactly what happened in the stagflation of the 1970s. Stagflation was impossible within Keynes' theory, but it happened nonetheless. With government spending crowding out private investment and inflation reducing real wages, Keynes' critics gained more ears. It ultimately fell upon Milton Friedman to reverse the Keynesian formulation of capitalism and reestablish free market principles in the U.S.

Keynes for the Ages

Although no longer held in the esteem that it once was, Keynesian economics is far from dead. When you see consumer spending or confidence figures, you are seeing an outgrowth of Keynesian economics. The stimulus checks the U.S. government handed out to citizens in 2008 also represent the idea that consumers can buy flat-screen TVs or otherwise spend the economy out of trouble. Keynesian thinking will never completely leave the media or the government. For the media, many of the simplifications are easy to grasp and work into a short segment. For the government, the Keynesian assertion that it knows how to spend taxpayer money better than the taxpayers is a bonus.


Despite these undesirable consequences, Keynes' work is useful. It helps strengthen the free market theory by opposition, as we can see in the work of Milton Friedman and the Chicago School economists that followed Keynes. Blind adherence to the gospel of Adam Smith is dangerous in its own way. The Keynesian formulation forced free market economics to become a more comprehensive theory, and the persistent and popular echoes of Keynesian thinking in every economic crisis caused free market economics to develop in response.Friedman once said, "We are all Keynesians now." But the full quote was, "In one sense we are all Keynesians now; in another, no one is a Keynesian any longer. We all use the Keynesian language and apparatus; none of us any longer accepts the initial Keynesian conclusions."

I am attaching here some books which i have found to be very useful in my preparation for any of the exam related to finance, economics & banking.... These books are available free of cost... Please make use of these books for referring to specific topics... Also i keep on sharing many links here on this thread which are extremely useful if u want to 'Digg' deeper...keep track of these and explore...

Commercial Banking in India : A Beginner's Module -

Financial Markets: A Beginner's Module -

Banking Sector Module -

Insurance Module -

Macroeconomics for Financial Markets Module -

Financial Markets (Advanced) Module -

Here is the gem of them all - You can check your FQ here -

The Government goes through the same procedures like any family household when it undertakes public spending decisions. Here's an insightful video on how the Government of any country manages its finances.

The Master has spoken again! Do you agree with him?

wont it put a lot of pressure on our economy (though its good that the planning commission finally agree on a dollar a day benchmark).. but if 65% in India are BPL does it mean most of the revenue is coming from just 35% of population. @Fin.wiz i think this ratio is worse that that of Nepal(58% living below $2/day) bhutan(26% below $2) and sri lanka(29%)..

Subramaniam Swami on FDI:

A little amount of FDI in certain sctors is a good thing but by taking FDI to current extremes, this government has crossed all limits even by the standards of some naive 5th grade economics.

1) Only 6% of Indians are in permanent jobs. 51% self employed, 33% temp jobs & 10% unemployed. FDI in retail may affect self employed badly.

2) Major chunk of FDI is the Black money of our nation brought back through participatory notes. Opportunists like Mayawati voted in support of FDI in the parliament, after opposing it at UP. Her excuse? "To keep communal forces away"!

3) upto 100% FDI is now allowed in telecom (to help Marxis and Maran). Same in aviation to help Jet (

4) They allowed Rupee to fall first and then let FDI give large gains to Foreign Investors from US/EU. The economic model which has collapsed in the west is now allowed to plunder our nation and its people. The west calls us the third world and yet wants to invest in us? The truth is, FDI is neo-Colonization by Corporates.

5) Even the Bureaucrats at Home Ministry have raised red flags over hiking FDI cap in defence (49% !), Space Research, Information & Broadcasting. The more money comes in, more regulations will be made in favour of investing foreigners. If this will not drag us back to the days of slavery, then what will ?

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What's your take on this puys???

@PhoenixScribe @brixcel @Rajdeep_S @jaspunit

RBI - "A Headless Chicken"....and will be...

Very nice resource for Beginners...

"In short, the mood was deeply pessimistic. Many now fear for the country's future. It is always darkest before the dawn, and this deep pessimism may be a contrarian indicator, but even rational and sensible people now seem to have given up. While it is truly difficult to be positive at present, one should not forget that we are a democracy with checks and balances. We have a very young and hugely aspirational population. The political system will eventually have to adapt to the needs and wishes of this huge demographic. We will have to make the systemic changes to bring growth back. It is wrong to think that we have permanently lost our way. The risk is that we could have some more pain ahead, maybe even a crisis before the required changes happen."

Article by Mr. Ashishkumar Chauhan, MD & CEO, BSE Ltd. in the book "INDIA 2061" - A LOOK AT THE FUTURE OF INDIA

guys what are the other ways to curb inflation besides increasing interest rates???

so much for benefitting local industries and farmers.. decision comes with a week after wallmart said it cant fulfill the 30% local sourcing criteria, moreover now even small cities will have them..