Business cycles refer to regularly occurring fluctuations in economic activity between periods of growth (expansion or prosperity) and contraction (recession or depression). According to Keynes, a trade cycle consists of periods of good trade with rising prices and low unemployment alternating with periods of bad trade with falling prices and high unemployment. There are five phases of a business cycle: 1) Depression, which is a period of sharp economic decline; 2) Recovery, as the economy begins to improve slowly; 3) Prosperity, marked by high production, investment, and full employment; 4) Boom, where overinvestment leads to overfull employment and inflation; 5) Recession, as overcapacity and inflation trigger a downturn that can lead back to

1. BUSINESS CYCLES OR TRADE
CYCLES
N.AKASH
2021031008

2. BUSINESS CYCLES / TRADE
CYCLES
 A cycle is defined as a regularly occurring phenomenon.Occurence of these cycles
in aggregate employment,income and price level is called Trade cycle.
 According to Keynes,”A trade cycle is composed of periods of good trade
characterized by rising prices and low unemployment percentages,altering with
periods of bad trade with falling prices and high unemployment percentages”
 Definition of Keynes, embodies two aspects i.e., prices and unemployment, for
fluctuations in the business cycles.

3. Phases Of a Business Cycle:
Depression
(trough)
Recovery
(revival)
Prosperity
(full
employment)
Boom
(Overfull
employment)
Recession

4. 1.Depression(trough)
 This is the initial stage of a business cycle. It is a protracted period and is marked
by sharp reduction, mass unemployment, fall in prices, profits, wages, interest
rates,consumption expenditure,investment,credit,high rate of business failures etc.
 Prices register an all time fall, and with the costs remaining the same more or less,
the industries suffer heavily.
 The farmers community suffers heavily, as the fall in prices of farm products and
raw materials is greater than the fall in the prices of industrial commodities.

5. 2.Recovery(revival)
 It is a stage that sets in after depression.To begin with, an improvement in the
economy is witnessed, as the entrepreneur are convinced that bad situation was
over and they can optimistically look into the future.
 Business activity is improved as a result of which industrial production commences
to pick up slowly but steadily.consequently employment shows sign of
improvement.
 Another development is found is rise in prices and accrual of profits in a small
measure.
 The new investment rise the demand for bank credit,then the banks expands credit.

6. 3.Prosperity(Full employment)
 It is a stage which is associated with increased production, high investment in
basic industries, expansion of bank credit,high prices,high profits, full employment
etc.
 It is highly encouraging stage for the businessman.
 The expansionary process continues until the economy reaches a very high level of
production called Boom or Peak.

7. 4.Boom(Overfull employment)
 This stage, which indicates continuance of investment beyond the stage of full
employment as inflationary tendencies creep.
 This leads the businessman to make additional investment and exert additional
pressure on the productons, leading to an increase in their prices.
 This trend creates a situation in which the number of jobs exceeds ,number of
works available,which is called as Overfull employment.
 The tempo of boom reaches new high,but at the same time it turns out be self-
destruction.
 This action paveway for the emergence of new stage called recession.

8. 5.Recession
 The cause was adopted by at the end of the boom.This leads to a reverse in the
business in the form of business failures.
 Unemployment becomes conspicuous which leads fall in income, expenditure and
profits.
 Once recession starts, it is accentuated and ends up in depression.

9. Fluctuations Of Business Cycle
Secular
Seasonal variations
Cyclical fluctuations
Miscellaneous random fluctuations

10. Causes Of Trade Cycle
Banking Operations
Capital goods and consumer goods
Purchasing power
Human Psychology
Cyclical changes in weather