The document discusses the four phases of business cycles: depressions, recovery, boom, and recession. It provides details on the key characteristics of each phase. Depressions are characterized by extremely low demand, falling inflation, rising unemployment, and companies cutting costs through layoffs. Recovery sees an upturn in demand, production, investment, falling unemployment as employment rises. Booms have accelerated and prolonged increased demand exceeding sustainable output, inflation rising, and shortages emerging. Recessions similarly have falling demand, lower inflation, rising unemployment, and companies cutting prices to sustain business.
1. BUSINESS CYCLES
The fluctuations in the level of economics activity between the depressions and
booms has been called by the economics as business cycles or trade cycles with
recessions and recovery as the main intermediate stages.
2. FOUR PHASES OF BUSINESS CYCLES
Depressions
Recovery
Boom
Recession
3. DEPRESSION
Though depression has visited the world economy only once in 1929, economists
have pin-pointed enough number of traits to recognize it.The major traits of
depression could be as given below:
1. An extremely low aggregate demand in the economy causes activities to
decelerate
2. The inflation being comparatively lower
3. The employment avenues starts shrinking forcing unemployment rate to grow
fast
4. To keep the business going, production houses go for forced labour-cuts or
retrenchments( to cut down production cost and be competitive in the
markets)
4. THE GREAT DEPRESSION OF 1929
The great depression of 1929 gave rise to the ideas of strong government
intervention in the economy, such as deficit financing, monetary management.
5. RECOVERY
The business cycle of recovery may show the following major traits:-
1. An upturn in aggregate demand which has to be accompanied by increase in
the level of production
2. Production process expands and new investments become attractive
3. As demand goes upward, inflation also moves upward making borrowing
cheaper for investors
4. With an upturn in production , new employment avenues are created and
unemployment rate starts declining
6. BOOM
This is the phase of the boom.The major economics traits of boom may be listed
as given below:-
1. An accelerated and prolonged increase in the demand
2. Demand peaks up to such a high level that it exceeds sustainable
output/production levels
3. The economy heats up and a demand-supply lag is visible
4. The market forces mismatch(i.e., demand and supply disequilibrium ) and tend
to create a situation where inflation starts going upwards
5. The economy might face structural problems like shortages of investible
capital, lower savings, falling standards of living, creation of a sellers’ markets.
7. RECESSION
Major traits of recession to great extent , are similar to that of ‘depressions’ but
last point of depressions is not similar in case of recession, it may be summed up
as follow:-
1. There is a general fall in demand as economics activities takes a downturn
2. Inflation remains lower or/and shows further signs of falling down
3. Employments rate falls/ unemployment rate grows
4. Industries resorts to ‘price cuts’ to sustains their business