Four Phases of Business Cycle
Business Cycle (or Trade Cycle) is divided into the next 4 phases :-
- Prosperity Phase : Expansion or Boom or Upswing of economy.
- Recession Phase : from prosperity to recession (upper turning point).
- Depression Phase : Contraction or Downswing of economy.
- Recovery Phase : from depression to prosperity (lower turning Point).
Diagram of Four Phases of Business Cycle
The 4 phases of describe concern cycles are shown inwards the next diagram :-
The describe concern bike starts from a trough (lower point) too passes through a recovery stage followed past times a menstruum of expansion (upper turning point) too prosperity. After the peak signal is reached at that spot is a declining stage of recession followed past times a depression. Again the describe concern bike continues similarly amongst ups too downs.
Explanation of Four Phases of Business Cycle
The 4 phases of a describe concern bike are briefly explained every bit follows :-
1. Prosperity Phase
When at that spot is an expansion of output, income, employment, prices too profits, at that spot is too a ascension inwards the touchstone of living. This menstruum is termed every bit Prosperity phase.
The features of prosperity are :-
- High degree of output too trade.
- High degree of effective demand.
- High degree of income too employment.
- Rising involvement rates.
- Inflation.
- Large expansion of banking concern credit.
- Overall describe concern optimism.
- A high degree of MEC (Marginal efficiency of capital) too investment.
Due to total job of resources, the degree of production is Maximum too at that spot is a ascension inwards GNP (Gross National Product). Due to a high degree of blogspot.com//search?q=what-are-economic-activities-types-of">economic activity, it causes a ascension inwards prices too profits. There is an upswing inwards the economical activity too economic scheme reaches its Peak. This is too called every bit a Boom Period.
2. Recession Phase
The turning signal from prosperity to depression is termed every bit Recession Phase.
During a recession period, the economical activities boring down. When need starts falling, the overproduction too hereafter investment plans are too given up. There is a steady reject inwards the output, income, employment, prices too profits. The businessmen lose confidence too instruct pessimistic (Negative). It reduces investment. The banks too the people effort to instruct greater liquidity, too thus credit too contracts. Expansion of describe concern stops, stock marketplace falls. Orders are cancelled too people offset losing their jobs. The increment inwards unemployment causes a sudden reject inwards income too aggregate demand. Generally, recession lasts for a curt period.
3. Depression Phase
When at that spot is a continuous decrease of output, income, employment, prices too profits, at that spot is a autumn inwards the touchstone of living too depression sets in.
The features of depression are :-
- Fall inwards book of output too trade.
- Fall inwards income too ascension inwards unemployment.
- Decline inwards consumption too demand.
- Fall inwards involvement rate.
- Deflation.
- Contraction of banking concern credit.
- Overall describe concern pessimism.
- Fall inwards MEC (Marginal efficiency of capital) too investment.
In depression, at that spot is under-utilization of resources too autumn inwards GNP (Gross National Product). The aggregate economical activity is at the lowest, causing a reject inwards prices too profits until the economic scheme reaches its Trough (low point).
4. Recovery Phase
The turning signal from depression to expansion is termed every bit Recovery or Revival Phase.
During the menstruum of revival or recovery, at that spot are expansions too ascension inwards economical activities. When need starts rising, production increases too this causes an increment inwards investment. There is a steady ascension inwards output, income, employment, prices too profits. The businessmen gain confidence too instruct optimistic (Positive). This increases investments. The stimulation of investment brings nearly the revival or recovery of the economy. The banks expand credit, describe concern expansion takes house too stock markets are activated. There is an increment inwards employment, production, income too aggregate demand, prices too profits offset rising, too describe concern expands. Revival slow emerges into prosperity, too the describe concern bike is repeated.
Thus nosotros come across that, during the expansionary or prosperity phase, at that spot is inflation too during the contraction or depression phase, at that spot is a deflation.
