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Prosperity

Increases in output, employment, investment demand, profits, bank loans, prices, standard of living, etc. are the main features of the phase of prosperity. We can observe the following important features during this phase.

1) Bank credits will grow rapidly even though the rate of interest is higher. There is general expansion of credit.

2) Idle funds are channelised into productive areas since stock prices are higher due to higher profitability.

3) Money supply increases and it continues to flow in all kinds of economic activities.

4) Excess capacity gradually disappears creating shortage of labour and raw materials.

5) After full employment is achieved, a further increase in demand leads to increase in prices. But factor remuneration like wages interest rates, rents, taxes etc. do not rise in proportion to the rise in prices so business continues to remain profitable. This increases investment especially of inventories. Demand for bank credit increases.

This way, the expansionary process becomes cumulative and the economy reaches the Peak.

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