The four important features of Trade Cycle are (i) Recovery, (ii) Boom, (iii) Recession, and (iv) Depression!
The trades cycle or business cycle are cyclical fluctuations of an economy. A full trade cycle has got four phases: (i) Recovery, (ii) Boom, (iii) Recession, and (iv) depression. The upward phase of a trade cycle or prosperity is divided into two stages—recovery and boom, and the downward phase of a trade cycle is also divided into two stages—recession and depression.
Phases of Trade Cycle:
The phases of trade cycle are explained with a diagram:
(1) Recovery:
In the early period of recovery, entrepreneurs increase the level of investment which in turn increases employment and income. Employment increases purchasing power and this leads to an increase in demand for consumer goods.
As a result, demand for goods will press upon their supply and it shall, thereby, lead to a rise in prices. The demand for consumer’s goods shall encourage the demand for producer’s goods.
The rise in prices shall depend upon the gestation period of investment. The longer the period of investment, the higher shall be the price rise. The rise of prices shall bring about a change in the distribution of income. Rent, wages, interest do not rise in the same proportion as prices.
Consequently, the margin of profit improves. The wholesale prices rise more than retail prices. The prices of raw materials rise more than the prices of semi-finished goods and the prices of semi-finished goods use more than the prices of finished goods.
(2) Boom:
The rate of investment increases still further. Owing to the spread of a wave of optimism in business, the level of production increases and the boom gathers momentum. More investment is possible only through credit creation. During a period of boom, the economy surpasses the level of full employment and enters a stage of over full employment.
(3) Recession:
The orders for raw materials are reduced on the onset of a recession. The rate of investment in producers’ goods industries and housing construction declines. Liquidity preference rises in society and owing to a contraction of money supply, the prices falls. A wave of pessimism spreads in business and those markets which were sometime before sellers markets become buyer’s markets now.
(4) Depression:
The main feature of a depression is a general fall in economic activity. Production, employment and income decline. The prices fall and the main factor responsible for it is, a fall in the purchasing power.
The distribution of national income changes. As the costs are rigid in nature, the margin of profit declines. Machines are not used to their full capacity in factories, because effective demand is much less. The prices of finished goods fall less than the prices of raw materials.
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FAQs
A trade cycle is international in character. Through international trade, booms and depressions in one country are passed to other countries. Phases of a Trade Cycle: Generally, a trade cycle is composed of four phases – depression, recovery, prosperity and recession.
What are the 4 phases of the business cycle and explain each? ›
The business cycle is the time is takes the economy to go through all four phases of the cycle: expansion, peak, contraction, and trough. Expansions are times of increasing profits for businesses, rising economic output, and are the phase the U.S. economy spends the most time in.
What are the four phases of the business cycle quizlet? ›
The four phases of the business cycle are peak, recession, trough, and expansion. Business cycle lengths vary.
What are the four stages of the economic recovery? ›
The economic cycle generally comprises four phases: expansion, peak, contraction, and recovery.
What is the business cycle answer? ›
An economic cycle, also known as a business cycle, refers to economic fluctuations between periods of expansion and contraction. Factors such as gross domestic product (GDP), interest rates, total employment, and consumer spending can help determine the current economic cycle stage.
What are the phases of the trade cycle? ›
According to Prof. Schumpeter, a trade cycle can have 4 phases : (1) Expansion or Boom, (2) Recession, (3) Depression or Trough or Contraction, and (4) Recovery.
What are the stages of the trade cycle? ›
Generally, a trade cycle is composed of four phases – depression, recovery, prosperity and recession. Depression: During depression, the level of economic activity is extremely low.
What are the four phases of the business cycle how long? ›
The four phases of a business cycle are peak, recession, trough, and expansion. The business cycles always vary in time and magnitude, starting from at least one year and can extend to two to three or more years.
What is the fourth stage of the business life cycle? ›
Stage 4: Business Renewal or Decline
While every business wants to avoid a decline, it's bound to happen to almost everyone. This can happen for a variety of reasons, such as: Not pursuing opportunities to expand during the maturity stage.
What is the proper sequence of the phases of a business cycle quizlet? ›
D, The order should be peak (or prosperity), contraction, trough, recovery or expansion. For the test, the business cycle may begin with any of these four phases.
An economic system is a system of production, resource allocation, exchange and distribution of goods and services in a society or a given geographic area.
What are the 4 economic indicators? ›
Economic indicators include measures of macroeconomic performance (gross domestic product [GDP], consumption, investment, and international trade) and stability (central government budgets, prices, the money supply, and the balance of payments).
What is the 4th economic system? ›
Economic systems can be categorized into four main types: traditional economies, command economies, mixed economies, and market economies.
What are the uses of trade cycle? ›
The importance of the trade cycle can be summarized as follows: Understanding economic performance: The trade cycle provides a framework for understanding the overall performance of an economy, including periods of growth and contraction. Forecasting future trends: B.
What is the 5 step business cycle? ›
Short Answer. The five phases of a business cycle are: Expansion, Peak, Recession, Trough, and Recovery.
What stage of the business cycle are we in? ›
Stage IV. There is almost no doubt, that we are now in Stage IV of the Business Cycle, as defined by the great cycle guru, Martin Pring.
What is the recession phase of the business cycle? ›
The NBER defines a recession as a period between a peak and a trough in the business cycle where there is a significant decline in economic activity spread across the economy that can last from a few months to more than a year.
What is the business cycle quizlet? ›
What is the business cycle? The business cycle is a model decribing the recurring and fluctuating levels of economic activity that an economy experiences over a long period of time. There are four phases in the business cycle - the upswing, the boom, the downswing, and the trough.
What is the boom and recession cycle in the economy? ›
The boom and bust cycle is a key characteristic of capitalist economies and is sometimes synonymous with the business cycle. During the boom the economy grows, jobs are plentiful and the market brings high returns to investors. In the subsequent bust the economy shrinks, people lose their jobs and investors lose money.
