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Procyclical

In the subject matter of economics, procyclical helps in detailing out that relationship in which economic quantity is related to the fluctuations in economy. The concept of procyclical is contradictory to the concept of countercyclical. So it has often been said that the concept of procyclical does not have any single meaning and has a varied one.

The concept of procyclical is also described to be a condition where a correlation of positive nature could be found between the values of a good, service or just an indicator of the economic system along with the general condition of economy. In simple plain words it can be said that the values of a good, service or just an indicator of the economic system moves in the same track with that of the economic system. Therefore this leads to a condition when the values of a good, service or just an indicator of the economic system increases with the growth of economy and it declines when there is a decrease in the economic condition.

In terms of finance and business cycle theory, the condition of procyclical takes place, when any quantity of economics is found out to be completely interrelated with that condition of economy which is general in character. This can be simply explained by saying that when any type of quantity is likely to enhance with a general growth of the economy it is described to be procyclical. On the other hand the condition is said to be countercyclical, when the value of those quantities which are likely to increase at times when the general economy is decreasing.

An appropriate example of procyclical economic pointer is the Gross Domestic Product or GDP. It has been observed that there are many stock prices which are known to be procyclical because they are much more inclined to increase when there is a quick growth in the economy. A very good example of which would help in indicating the situation to be countercyclical is the situation of unemployment.

As one tries to find out the exact meaning of procyclical, the individual would be quite amazed to find out that it has a very different meaning in the perspective of economic policy. In the context of economic policy procyclical is regarded to be any feature of the economic policy that would be able to increase the fluctuations in the field of finance or economics. The condition is only said to be countercyclical in the context of economic policy if the policies that are adopted in economics are able to decrease such kind of economic vacillation.

The financial regulations that are being followed up by Basel II Accord have been condemned because they were actually procyclical in character. The banks were compelled to increase their ratios of capital according to the agreement when they are faced up with bigger hazard. So in times of a critical situation faced by the credit or in times of recession, the banks are compelled to lend less amount of money. This is because of the reasons that if these banks move on to lend more amount of money this would only lead to a situation which would aggravate the conditions of recession.

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