Business Cycles

The term Business cycle or economic cycle refers to economy-wide fluctuations in production or economic activity over several months or years.

The cycles affect not only the economy in general, but each individual business firm.

Characteristics of Business Cycles

1.       A business cycle is synchronic.

      2.       A business cycle shows a wave like movement
      3.       Cyclical fluctuations are recurring in nature.
      4.       There can be no indefinite depression or eternal boom period.
      5.       Business cycle are pervasive in their effects.
      6.       The up and down movements are not symmetrical.

Phase of a Business Cycle

1. Boom

2. Recession
3. Depression
4. Recovery

BOOM

1.       During the boom phase production capacity is fully utilized and also products fetch an aove normal price which gives higher profit.

      2.       In Boom period, consumption will be decreased as prices are going up.
      3.       The Demand is more or less stagnant or it even decreases

RECESSION

1.       A downward tendency in demand is observed.

      2.       The supply exceeds demand
      3.       Desire for liquidity increases all around.
      4.       Producers are compelled to reduce price so that they can find money to meet their obligations.
      5.       This Phase of the business cycle is known as the Crisis.

DEPRESSION

1.       Underemployment of both men and materials is a characteristic of this phase.

      2.       General Demand falls faster than production.
      3.       Volume of Production will be reduced.
      4.       The demand for the bank credit is at its lowest which results in idle funds.
      5.       The interest rates are decline regime.

RECOVERY

1.       Depression phase done not continue indefinitely.

      2.       The idle workers now come forward to work at low wages.
      3.       Prices are at the lowest, the consumers, who postponed their consumption expecting a still further                   fall in price, now start consuming.
      4.       As demand increases, the stocks of goods become insufficient