BUSINESS CYCLE

Business

cycle is the periodic up & down movements in economic activities. tendency of economic activities to expand and contract in periodical interventions is known as Trade cycles or Business cycles

The

 The

economic activities measured in terms of production, employment and income move in a cyclical manner over a period of time The cyclical movement is characterised by alternative waves of expansion and contraction, and is associated with alternate periods of prosperity & depression.

The Conventional Three-Phase Business Cycle

Peak

Peak Peak Prosperity

Trough

Trough

2005

2010 Year

2015

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10-4

PHASES OF BUSINESS CYCLES

A

Business cycle can be studied in four phases. Expansion, peak, contraction(recession), trough (depression) and two turning points upward & downward

From this Diagram,

The

economic activities, measured in terms of GNP, increase for some years and then start falling, and the process of up & down movement continues. The portion AB is known as trough or depression BC is the expansion phase; CD is the peak or boom, and DE is the phase of contraction or recession

Expansion:
This

is a phase when all macro economic variables like output, employment, income & consumption increase. At the same time prices move up, money supply increases, and the self reinforcing feature of business cycles pushes the economy upward.

Peak:
This

is the highest point of growth; it is referred to as peak or boom. This is the stage beyond which no further expansion is possible, and it is that phase which sees the downward turning point.

Contraction: (Recession)
It

means slowing down process of all economic activities. In this stage, there are workers who are willing to work, but cannot, because no one is willing to hire them;

Trough: (Depression)
This

is the lowest ebb of economic cycle. And it is followed by the next turning point in the cycle, when new growth process starts afresh.

 There

are two turning points in the cycle: One at peak when the economy starts sliding down, And the other at trough, when the economy picks up momentum for another phase of growth.