Phases of trade cycle

Answer 1

Characteristics of Business Cycle:

The fluctuations are wave like movement and are recurrent in nature.

Business Cycle is characterized by waves of expansion and contraction. But these are not only two phases of business cycle. There are four phase of business cycle - Expansion, Recession, Contraction and Revival or Recovery.

The movement from peak to trough and again though to peak is not symmetrical. According to Keynes, prosperity phase of business cycle comes to end fast but dip is gradual and slow.

Business Cycle is self generating. Every phase has germs of the next phase, that is, expansion has the germs of the recession in it.

In this chapter we learnt about business cycle and its characters and definition. However, we already have studied about marginal efficiency of capital and investment in business by this blog. Business cycles are everything which determines your business objectives.

Answer 2

1. Inflation: When the economic activity increases after full employment

level, it is called inflation. During inflation, the demand pressures will

be high. Increasing demand leads to increasing product prices,

increasing demand for factors, higher wages and then increasing

demand again.

2. Boom: Boom refers to the peak in the level of economic activity after

full employment. The demand pressures will be at the peak. The price

level will be very high.

3. Deflation: It is the downward trend in the economic activities after

boom. At boom level the Government will take corrective measures

due to which the economic activity will show a change in trend.

4. Recession: When the economic activity reduces below full

employment It is called recession. The level employment will

decreases, the prices will decrease and the economic activity shrinks.

5. Depression: This is the lowest level of economic activity. The markets

collapse. Large scale unemployment will lead to poverty and

suffering. The world experienced Great depression during 1929 and

1933.

6. Recovery: From the lowest levels of economic activity the markets

recover due to positive Government policy. The economic activity

will increase towards full employment. Three will be increase in the

level of employment, incomes, investment and demand.