Características Liderazgo tradicional

Where Y = National Output, C = Consumption, I = Investment, G = Government Expenditure, X-M = Net Export.

This model was used to estimate the national output with economic crimes as one of the explanatory variables.

maximum period for which they are willing to lend. No discrimination may be made about purposes for which the loans are to be utilized. The main instrument for encouraging borrowing by the businessmen is the reduction of the discount rate. Thus, under the circumstances of easy bank credit, a process of cumulative expansion of productive activity is set in. The bank finances make the wholesalers place larger orders to the manufacturers for raising their stocks of goods. This induces additional production and employment and the money created by the banks is received by the factors of production as incomes. The increased personal incomes will raise the monetary demand (consumer‘s expenditure) which will give further momentum to the economic activity. This results in a cumulative expansion of productive activity. As the cumulative expansion proceeds, prices are quoted higher and higher. When prices rise, dealers have a further inducement to borrow, since the rising prices affect the business activity in the same manner as a fall in interest rates.

Prosperity stops when credit restraints are imposed by banks. Extension of credit is stopped and pressure is applied upon business firms for the recovery of outstanding loans. This results in the emergence of contraction. The credit restrictions and insistence on repayment of loans by banks will force the firms to dispose of the stocks which results in a fall in prices. As the prices fall, losses appear and the producers curtail production, workers are laid off; factor incomes decline; and there is a decline in consumer outlays which depresses sales, causing stocks to accumulate and the resultant losses continue to aggravate the downward tendencies. Thus, it is evident that the critical factor in precipitating the downturn is the contraction of bank credit.

World Bank (2013), points out that finance matters, both when it functions well and when it functions poorly. Supported by robust policies and systems, finance works

quietly in the background, contributing to economic growth and poverty reduction.

However, impaired by poor sector policies, unsound markets, and imprudent institutions, finance can lay the foundation for financial crises, destabilizing economies, hindering economic growth, and jeopardizing hard-won development gains among the most vulnerable. When financial systems perform their functions poorly, they hinder economic growth, curtail economic opportunities, and destabilize economies. For example, if financial systems collect funds and pass them along to cronies, the wealthy, and the politically connected, it slows economic growth and blocks potential entrepreneurs. The IMF also notes that the volume of clandestine movement of finance in and outside nations put the domestic and international financial stability at great risk.

c) Keynes Theory of Business Cycle

John Maynard Keynes has made an important contribution to the analysis of the causes of business cycles in 1939 and according to Keynes, the level of income, output or employment is determined by the level of aggregate effective demand. A higher level of aggregate demand will result in greater output, income and employment and a lower level of aggregate demand will result in smaller amount of goods and services. Hence, the changes in the level of aggregate demand will bring about fluctuations in the level of income, output and employment.

Keynes stated that fluctuations in economic activity are due to the fluctuations in aggregate effective demand. Thus, a fall in aggregate effective demand will create the conditions of recession or depression. If aggregate demand is increasing, economic expansion will take place. Keynes also noted that aggregate demand is composed of demand for consumption goods and demand for investment goods. Thus, aggregate

demand depends on the total expenditure of the consumers on consumption goods and entrepreneurs on investment goods. A simple algebraic expression of the above idea is stated in Equation 2.

Y = {Aggregate Demand (AD) = C + I + G + (X-M)}.……….2 Where Y = National Income/Output, C = Consumption, I = Investment, G

=Government expenditure, X-M = Net Export.

The Circular Flow of Income Model has given an insight on some of the factors that contribute to the changes in AD. John Maynard Keynes aggregate demand is similar to the circular flow model and the two were adopted in this work.

To Keynes, the propensity to consume is almost stable in the short run and fluctuations in aggregate demand are primarily due to the fluctuations in investment demand. Hence, it is fluctuations in investment demand that brings about business cycles in the economy and fluctuations in investment are due to fluctuations in the marginal efficiency of capital (M.E.C). The volume of private investment depends upon (i) the rate of interest and (ii) the marginal efficiency of capital. The rate of interest is more or less stable and hence the M.E.C is the real strategic variable which determines the volume of private investment. Hence, it is the fluctuations in marginal efficiency of capital that cause fluctuations in investment and fluctuations in income, output or employment.

Keynes has shown that changes in investment will have its effect on output, income or employment. This is explained in terms of multiplier which shows that there will be a manifold change in income as a result of an initial change in investment. As such,

changes in investment will get magnified when multiplier is working during the upswing or downswing of a business cycle.