Four Phases of Business Cycle Essay

crease Cycle (or Trade Cycle) is divided into the sideline four arranges - Prosperity physical body magnification or Boom or Upswing of economy. recessal Phase from prosperity to recession (upper routine even out). Depression Phase Contraction or Downswing of economy.Recovery Phase from natural belief to prosperity (lower turning Point).Diagram of foursome Phases of Business CycleThe four phases of line of merchandise cycles argon shown in the following plat -The profession cycle starts from a till (lower point) and passes through a recovery phase followed by a plosive of amplification (upper turning point) and prosperity. After the peak point is reached in that respect is a declining phase of recession followed by a depression. Again the blood cycle continues similarly with ups and downs.Explanation of quad Phases of Business CycleThe four phases of a business cycle be in short explained as follows -1. Prosperity PhaseWhen in that location is an elaborat ion of output, income, employment, prices and net, in that location is excessively a rhytidectomy in the old-hat of living. This period is termed as Prosperity phase. The features of prosperity are - mettlesome level of output and trade.High level of effective necessary.High level of income and employment.Rising interest rates.Inflation.Large expansion of jargon credit.Overall business optimism.A high level of MEC (Marginal efficiency of capital) and investment. collectable to full employment of resources, the level of labor is Maximum and thither is a upraise in GNP (Gross National Product). repayable to a high level ofeconomic activity, it causes a rise in prices and profits. There is an upswing in the economic activity and economy reaches its Peak. This is also called as a Boom Period.2. fadeout PhaseThe turning point from prosperity to depression is termed as Recession Phase. During a recession period, the economic activities slow down. When demand starts peging, the over takings and future investment plans are also given up. There is a steady moderate in the output, income, employment, prices and profits. The business community lose confidence and become pessimistic (Negative). It reduces investment. The banks and the people try to get great liquidity, so credit also contracts. expansion of business stops, stock market falls. Orders are cancelled and people start losing their jobs. The growth in unemployment causes a sharp decline in income and conflate demand. Generally, recession lasts for a short period.3. Depression PhaseWhen there is a continuous decrease of output, income, employment, prices and profits, there is a fall in the standard of living and depression sets in. The features of depression are - devolve in volume of output and trade.Fall in income and rise in unemployment.Decline in consumption and demand.Fall in interest rate.Deflation.Contraction of bank credit.Overall business pessimism.Fall in MEC (Marginal efficiency of capital) and investment. In depression, there is under-utilization of resources and fall in GNP (Gross NationalProduct). The gist economic activity is at the lowest, do a decline in prices and profits until the economy reaches its Trough (low point).4. Recovery PhaseThe turning point from depression to expansion is termed as Recovery or revivification Phase. During the period of revitalization or recovery, there are expansions and rise in economic activities. When demand starts rising, production increases and this causes an increase in investment. There is a steady rise in output, income, employment, prices and profits. The business community gain confidence and become approbative (Positive). This increases investments.The stimulation of investment brings about the revival or recovery of the economy. The banks expand credit, business expansion takes place and stock markets are activated. There is an increase in employment, production, income and aggregate demand, prices an d profits start rising, and business expands. Revival slowly emerges into prosperity, and the business cycle is repeated. thusly we see that, during the expansionary or prosperity phase, there is inflation and during the contraction or depression phase, there is a deflation.