Business Cycles
Business Cycle- Phases and Features
Objective
After going through this lesson, you shall be able to understand the following concepts:
- Meaning of Business Cycle
- Phases of Business Cycle
- Features of Business Cycle
Introduction
We earlier discussed that economics deals with the fluctuations in the economic activities of a country. But, the important questions that arise are: What are these fluctuations? How do we identify them? How do they occur? And so on. So let’s answer these questions one by one.
Consider the following cases:
1. Due to rapid growth during 1920s, UK saw a gradual growth in the GDP, living standards and production levels of the country. Not only this, the growth was also fuelled by new technologies and production processes like the assembly line production along with a rise in the value of stock market.
2. During 1990s, Japan experienced a fall in its growth rate following the asset price bubble. In fact, it went through stagnancy with a continuous fall in GDP, real wages and stagnant price levels.
These cases portray the business cycles in two countries. The first example shows how the UK economy experienced a boom period during 1920s while the second example indicates the recession period in Japan.
Through research, we can find many more examples of boom and recession in the economic history of the world which indicates that at some time or the other, nearly all the countries have gone through periods of prosperity alternating with periods of economic downturns. Such rhythmic fluctuations in economic activities of an economy over a period of time are called business cycles or trade cycles.
Important Note: According to Keynes, a trade cycle is composed of periods of good trade characterised by rising prices and low unemployment percentage, altering with periods of bad trade characterised by falling prices and high unemployment percentages.
So in a nutshell we can say, that business cycle refers to the fluctuations in the form of expansion or contraction of overall economic activities, such as, GDP, employment and income levels of a country. However, these fluctuations are recurrent and occur periodically. That is, they reoccur after certain time periods, but their intervals or length are never the same. For example, some business cycles may be long, lasting for several years while others may end after two to three years.
Phases of Business Cycle
A business cycle consist…
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