Four phases of a trade cycle are: 1. Let us discuss one by one. Overview of the Process. We break down the GDP formula into steps in this guide. Slump or Depression: This is the most critical and fearful stage of a trade cycle. In the former economic activity is at its trough, while in the latter, economic activity is at its peak. This phase includes an increase in the number of jobs available and an increase in the cost of goods. Phases of business cycle 1. This cycle is the result of human behavior in the markets. Thus, depression and prosperity differ in degree rather than in kind. The period of high income, high output and high employment is called as the Period of Expansion, Upswing or Prosperity. The length of a business cycle is the period of time containing a single boom and contraction in sequence. 2. Causes of Trade Cycle Following theories have been formulated in regard to the causes of the cycles: 1. During the revival period, level of employment output and income slowly and steadily improve. For, during a depression, businessmen postpone replacement of their plant and machinery and consumers postpone the purchase of durable goods. A trade cycle may complete its phases in a period of 5 to 10 years. When prosperity ends, recession begins. A business cycle … The four phases of the business cycle are prosperity, recession, depression and recovery. 1. Everyone feels pessimistic about the future profitability of investment. Depressionary phase — contraction or downswing. Different explanations stressing one or a few factors at a time have been advanced by economists. A recession is the substantial decline of economic activity that lasts longer than a few months. In fact, the profit-inflation and over-optimism which increase the tempo carry with them the seeds of self- destruction. Clues to the mid-cycle phase are not as obvious as other phases of the business cycle so it’s also less obvious when to adjust your investments. Boom 4. Business cycles are identified as having four distinct phases: expansion, peak, contraction, and trough. Prosperity phase : It is characteristics by. Employment increases purchasing power and this leads to an increase in demand for consumer goods. The wholesale prices rise more than retail prices. Prosperity Phase: Expansion or Boom or Upswing of economy. In fact, the very forces which cause the depression are themselves self- defeating. It marks the point at which the forces that make for contraction finally win over the forces of expansion. 477 x 317 jpeg 25kB. It has been defined differently by different economists. The noun ‘cycle’ bars out fluctuations which do not occur with a measure of regularity”. Thus, expansion is checked. The prices of finished goods fall less than the prices of raw materials. The orders for raw materials are reduced on the onset of a recession. As Haberler points out, the characteristic features of prosperity are (i) a high level of output and trade, (ii) a high level of effective demand; (iii) a high level of employment and income; (iv) a high marginal efficiency of capital; (v) a price inflation; (vi) a rising structure of interest rate; (vii) a large expansion of bank credit; (viii) overall business optimism, and (ix) tendency of the economy to operate at almost full capacity along its production possibility frontier. This suggest… The business cycle, also known as the economic cycle or trade cycle, are the fluctuations of gross domestic product (GDP) around its long-term growth trend. The movement of prices in the stock market can often seem random and hard to follow. increasing or decreasing progressively. Rent, wages, interest do not rise in the same proportion as prices. Monetary theory 4. 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