4 Phases Of Business Cycle In Economics With Diagram

Business Cycle (or Trade Cycle) is split into the following four phases: -Prosperity Phase: Expansion or Boom or Upswing of the overall economy. Recession Phase: from prosperity to recession (upper turning point). Unhappiness Stage: Downswing or Contraction of the overall economy. Recovery Phase: from depression to prosperity (lower turning Point).

The business cycle begins from a trough (lower point) and goes by through a recovery phase followed by a period of extension (upper turning point) and wealth. After the top point is reached there’s a declining phase of downturn followed by a depression. Again the business cycle continues similarly with fluctuations. When there is an expansion of output, income, employment, profits, and prices, there is a rise in the typical of living also.

This period is termed as Prosperity phase. The top features of prosperity are: -1. Higher level of result and trade. 2. Advanced of effective demand. 3. A higher level of income and employment. 4. Rising interest levels. 6. Large enlargement of lender credit. 7. Overall business optimism. 8. A higher level of MEC (Marginal efficiency of capital) and investment.

Due to full employment of resources, the amount of creation is Maximum and there is a rise in GNP (Gross National Product). Due to a high degree of economic activity, it causes a rise in prices and earnings. There is an upswing in the economic economy and activity reaches its Peak. This is called as a Growth Period also.

The turning point from prosperity to major depression is referred to as Recession Phase. Throughout a recession period, the economic activities down slow. When demand starts falling, the overproduction and future investment plans are also given up. There is a steady decline in the output, income, employment, profits, and prices. The businessmen lose confidence and become pessimistic (Negative).

It reduces investment. The banking institutions and the cultural people make an effort to get greater liquidity, so credit contracts. Expansion of business stops, currency markets fall. Orders are canceled and people start dropping their jobs. The upsurge in unemployment causes a sharp decrease in income and aggregate demand. Generally, downturn lasts for a brief period.

When there is a continuous decrease of output, income, work, prices and earnings, there’s a fall in the standard of living and depression pieces in. The top features of major depression are: -1. Fall in level of result and trade. 2. The fall in income and rise in unemployment. 3. Decrease in demand and intake. 4. Fall in interest. 6. Contraction of the bank or investment company credit. 7. Overall business pessimism. 8. Fall in MEC (Marginal efficiency of capital) and investment. In major depression, there is under-utilization of resources and fall in GNP (Gross National Product). The aggregate economic activity is at the lowest, leading to a decrease in prices and income until the economy gets to its Trough (low point).

The turning point from despair to growth is termed as Recovery or Revival Phase. Over revival or recovery, there are rise and expansions in economic activities. When demand starts rising, production increases, which causes an increase in investment. There is a stable rise in result, income, work, prices, and income.

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The businessmen gain confidence and become optimistic (Positive). This increases investments. The arousal of investment brings about the recovery or revival of the economy. The banks to expand credit, business expansion occurs and stock markets are activated. There is an increase in work, production, income and aggregate demand, prices and revenue start rising, and business expands. Revival emerges into wealth slowly, and the business cycle is repeated.

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