Page 224 - DECO402_Macro Economics

Unit-24: Trade Cycles: Meaning and Types

recovery. In the same way, credit contraction cannot bring depression. If much happens, it Notes
may merely create conditions for depression. In this way expansion or contraction of credit
can neither bring boom nor depression in the economy.
2. Prosperity cannot be continued and depression cannot be delayed indefinitely: Haberlar
has criticised this argument of Hawtrey that, “For dissolving trade boom always monetary
reasons are responsible and if money supply is endless then prosperity will go on forever
and depression may be stopped.” But the fact is that even if supply of money in the country
is infinite, still neither prosperity may be continued for an uncertain period nor depression
may be cancelled.
3. Traders not dependent only on bank credit: What workpart Hawtrey has given to wholesale
dealer, Prof. Hamburg has criticised it. In Hawtrey’s theory, main people who take loan for
banks are traders or wholesalers and start bringing rise or fall. In reality traders do not only
depend on banks but use their hoarded reserves and by taking loans from their personal
sources arrange finance for their business.

Task Express your thoughts about theory related to trade cycle.

24.5 Samuelson’s Trade Cycle Model

Prof. Samuelson by assuming various values of one period lag MPC (α) and accelerator (β), has
prepared a Multiplier-accelerator model related to five different types of trade cycles. This is Samuelson
model-

Y = G + C + I ...(i)
t t t t
Where Y is national income (Y) at time t which is sum total of government expenditure G , consumption
t
t
expenditure C and induced investment I .
t
t
C = α Y ...(ii)
t t–1
I = β (C – C ) ...(iii)
t
t–1
t
On substituting equation 2 in equation 3 we get
I = β (α Y – α Y )
t t–1 t–2
I = β α Y – β α Y ...(iv)
t–1
t–2
t
G = 1 ...(v)
t
On substituting equations 2, 4 and 5 in equation 1 we get
Y = 1 + α Y + β α Y – β α Y ...(vi)
t
t–1
t–2
t–1
= 1 + α (Y + β α Y ) – β α Y t–2
t–1
t–1
= 1 + α (1 + β) Y – β α Y ...(vii)
t–1 t–2
According to Samuelson "We national income of two periods is known to us then by taking weighed
sum, national income of the next period can easily be calculated. Weight, no doubt will depend on
values chosen of relation with marginal consumption tendency. By assuming this that value of marginal

LOVELY PROFESSIONAL UNIVERSITY 217