Cycle

What do you mean by business cycle? Describe the stages of business cycle.

BUSINESS CYCLE:

The recurring & fluctuating levels of economic activity that an economy experience over a long period of time is called business cycle.

Broadly, business cycle is a predictable long term pattern of alternating periods of economic growth & decline characterized by changing employment & industrial productivity & interest rates.

Business cycle is a swing in total output, income, employment usually lasting for a period of 2 to 10 years, marked by wide spread expansion or contraction in most sectors of economy.

According to parkin & bade: business cycle is periodic but irregular up & down movement in the economic activity.

Finally, business cycle is usually measured by considering the growth rate of real gross domestic product.

STAGES OF BUSINESS CYCLE:

There are four stages of business cycle. They are below-

1. PEAK

2. CONTRACTION

3. TROUGH

4. EXPANSION

1. PEAK:

The peak is the turning from contraction to expansion. As investment rises the industries start producing more & excess capacity. Employment of labor increases & rate of unemployment falls due to heavy investment. Due to full employment of resources, the level of production is maximum & there is a rise in GNP. For high level of economic activity, it causes a rise in prices & profits. There is an upswing in the economic activity & the economy reaches its peak. This is also called as a ‘‘Boom Period’’.

2. CONTRACTION:

Expansion or prosperity is followed by contraction of depression. During contraction there is not only a fall of GNP but also level of employment...