Categories: Economy

Concept of Curves in Economy

Concept of Curves in Economy– A curve is a graphical representation of how a particular quantity whether it is growth, supply, or demand alters over a period of time. They are generally used in the statistical analysis in order to determine the type of pattern for that quantity.

The shape of the curve creates a big difference in determining the current and upcoming scenario for that quantity. As we all knew that a recession is upon us due to the COVID-19 crisis and it spiked the unemployment rate as well as adversely affected the monetary and fiscal policies of the Government and the researchers believe that the upcoming economic data will be shocking.

Each historical recession and recovery had a unique component such as inflation, strategic failures, or any other issue and each cycle had a common characteristic such as money and fiscal tactics.

The few unique patterns/cycles were:

U- Shaped curve

U- Shaped curveSimon Kuznets put forward the hypothesis that the relationship between per capita national income and the degree of inequality in income distribution which may be in the form of inverted U shaped. According to Kuznets inverted U-hypothesis as per capita, the national income of a country increases in the initial stage of growth, and after reaching the highest point in the middle of growing the income inequality falls.

V-Shaped curve

V-Shaped curve It is a type of economic recession and recovery which creates a V-shaped pattern, in this the economy deals with sharp economic decline but with quick economic recovery. As the recession of 1953 in the U.S is a clear example of a V-shaped curve.

V-Shaped curve Example

Countries normally experience a decrease in their economic growth every few years and when the growth decreases continuously for 6 months then it is considered as a recession. However, when the economy drops more frequently and lasts for a year it is called depression.

L- Shaped curve

L-shaped Curve Example

L- Shaped curveIt is another economic recession and recovery cycle in this there is a rapid decline in the growth and then followed by slow growth and sometimes it becomes stagnant. When referring to recessions and the period of recovery that follows, Economists often refer to the general shape in analyzing the measures of the economic conditions. Employment rate, GDP, Industrial output indicates the current state of the economy and in L- shaped curve recession recovery can take much longer time as compared to other patterns.

W- shaped curve

W- shaped curveIt involves the sharp decline in the rate followed by a sharp rise in recovery but again it will be followed by a sharp decline by ending with the sharp economic rise and the cycle continues until the effective measures were not implemented.

W-Shaped Curve Example

A W-shaped recession begins like a V-shaped but the cycle continues and thus a pattern like W is formed and it is also called a double-dip recession.

What will be the shape of Economic Recovery after Pandemic?

V- shaped recovery- “Quick boom”

Many economists are hoping for V-shaped recovery because when this outbreak will end, then customers will return immediately and the employees will do their work with higher efficiency. Like at present Netflix is on V-shaped recovery.

U-shaped recovery- “Slow Recovery”

For the majority of the companies, it will take a period of time for their customers to return and all this stuff will be normal again. Customers may shift their priorities and taste for products or services. The U- shaped recovery will be implemented on the majority of the companies like at present Home Depot seems to be on U- shaped recovery.

L- shaped recovery- “Too hard to return to Normal”

For some sectors/companies, their recovery pattern will be L- shaped because their business is totally washed away. The majority of the hotel companies might suffer from this and at present Royal, Caribbean is having this type of curve.

Game Changers

We think that there are few things which need to be developed more so there is much possibility that the investors will look in these sectors like

  • Treatment facilities
  • Medical equipment
  • Hospital capacity
  • FMCG (especially ready to eat food)

Also ReadWhy You Need A Budget?

Conclusion

The RBI Governor expects that there will be a V-shaped recovery of the India’s economy in 2021-2022 as projected by IMF.

By quoting the IMF’s projection of 1.9% growth for India in the current fiscal year, he said that India is among the handful of countries which will proceed to a positive side of the growth and this rate is the highest in G-20 countries as estimated by IMF.

Faiz & Mohtasham

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