In a recession, aggregate demand falls. Producers are initially unable to cut production fast enough, leading to an involuntary accumulation of inventories (unsold stock), which eventually forces them to cut production and employment.

In a boom, demand outstrips supply, causing inflation. A "Dear Money Policy" (tight monetary policy) raises interest rates to discourage borrowing and spending, thereby cooling down the economy.

Keynes argued that fluctuations in Aggregate Demand, particularly Investment demand driven by "animal spirits" (business confidence), are the main drivers of the business cycle.

Leading indicators change *before* the economy as a whole changes. "New orders for capital goods" signal future production activity. Unemployment is a lagging indicator (changes after the economy turns), and CPI is often a lagging or coincident indicator.

One person's spending becomes another's income, who then spends a part of it, creating a chain reaction. Thus, an initial injection of spending raises National Income by a multiple of that amount.

A depression is an extreme form of recession. It lasts longer (years vs months) and involves a much sharper decline in GDP (e.g., >10%), massive unemployment, and deflation.

The Accelerator theory suggests that net investment is a function of the growth in output. If demand for consumer goods rises, firms need more machines (capital) to produce them, leading to a more than proportionate rise in investment demand.

Joseph Kitchin identified short business cycles of about 40 months driven by lags in information and decision making regarding inventory levels.

Joseph Schumpeter argued that business cycles are caused by waves of innovation (creative destruction). Entrepreneurs introduce new products/processes, causing booms, followed by adjustments.

The Recovery phase starts after the Trough. It is marked by a gradual return of confidence. Firms begin to replace worn-out machinery (investment kicks in), employment starts to pick up slowly, and banking lending begins to ease, leading to a slow rise in aggregate demand.

A global recession reduces the income and demand in foreign countries. This leads to a fall in demand for Indian exports (software, gems, textiles). Additionally, global investors become risk-averse, often pulling capital (FPI) out of emerging markets like India, affecting the stock market and rupee value.

Paul Samuelson utilized the interaction between the Keynesian Multiplier (consumption effect) and the Accelerator (investment effect) to build a model that explains the oscillatory nature (cycles) of economic activity.