8USINLSS CCLLS

IN1kCDUC1ICN
8uslness cycle or 1rade cycles refer Lo Lhe flucLuaLlons ln economlc acLlvlLy LhaL
occurs ln caplLallsL socleLles ln buslness cycles Lhere are wave llke flucLuaLlons
ln four lnLerllnked economlc varlables lncome employmenL prlce and
roducLlon 8uslness condlLlons wlll rarely be ln a consLanL condlLlon eak or
prosperlLy wlll be ofLen followed by a downward fall Lconomlc expanslon wlll
lead Lo recesslon lL furLher leads Lo Lhe fall ln naLlonal lncome employmenL
and producLlon
As a resulL of Lhls prlces and proflLs decllne people lose Lhelr [obs and
become unemployed LvenLually Lhe boLLom ls reached and recovery of Lhe
economy beglns lL could be slow or fasL compleLe or lncompleLe buL
evenLually lL reaches Lhe peak polnL or boom agaln When Lhe values of Lhe
economlc varlables are ploLLed on a graph we geL a flgure whlch ls a wave
lengLh flgure and lL ls called 'Cycle'
lL ls also Lo be noLed LhaL Lhe sequence of changes ln buslness cycles ls
recurrenL and happens ln a falry slmllar paLLern Powever lL cannoL be fully
sald LhaL lL ls perlodlc ln naLure 1haL ls because Lhe rhyLhm or Lhe perlodlclLy
beLween Lhe cycles need noL be famlllar ln shorL buslness cycles are
flucLuaLlons found ln an aggregaLe economlc acLlvlLy

CnAkLC1LkIS1ICS CI 8USINLSS CCLL
8uslness cycles are maln flucLuaLlons of Lhe economy whlch ls maln
characLerlsed by perlods of boom followed by perlods of depresslon 8uslness
cycles are sub[ecLed Lo some pecullar characLerlsLlcs Some of Lhe noLable
characLerlsLlcs of buslness cycles are noLed below
1 1he duraLlon of buslness cycles exLends Lo duraLlon of 3 Lo 4 years And 2 Lo
3 of Lhese cycles compleLes almosL a fully buslness cycle Powever Lhe
dlfference beLween Lwo buslness cycles exLends Lo a perlod of 6 Lo 12 years
2 lL has been found LhaL durlng Lhe perlod of prosperlLy of buslness acLlvlLy ls
more Lhan Lhe longLerm Lrend whlle ln depresslon lL ls below Lhe Lrend
3 So generally prosperlLy Lakes Lwlce as much as Llme Lo develop Lo full exLend
compared Lo depresslon LhaL Lakes comparaLlvely less Llme Lhan lL
4 1he phases of buslness cycles (recovery prosperlLy depresslon and
recesslon) and Lhelr sequence of occurrence are same ln all Lhe cycles
3 lL ls noLed LhaL ln durlng Lhe perlods where Lhe economy experlences hlgher
boom perlod Lhe depresslon LhaL succeeds Lhe boom wlll also be much severe
6 Powever Lhls relaLlonshlp may noL hold ln Lhe reverse LhaL ls a severe
depresslon ls noL usually followed by Lhe hlgher boom perlod
7 ln every buslness cycle Lhere are changes ln Lhe general prlce level whlch a
cycllcal ln naLure 8uL usually ln Lhe beglnnlng of prosperlLy as well as
depresslon lL ls characLerlsed by Lhe changes ln Lhe prlces of sLocks and shares
8 AmongsL Lhe commodlLles Lhe rlse or fall ln Lhe prlces of raw maLerlals ls
earller Lhan LhaL of flnal goods
9 ln general Lhe reLall prlces usually Lend Lo lag behlnd Lhe wholesale prlces ln
Lhe perlods of prosperlLy and depresslon

1nL nASLS CI 8USINLSS CCLL
A buslness cycle ls dlvlded malnly lnLo 4 phases 1 rosperlLy 2 8ecesslon 3
uepresslon and 4 8ecovery 1hese phases of buslness cycles recur wlLh some
sorL of regularlLy and are unlform ln Lhe occurrence of all buslness cycles
Powever Lhe perlod beLween Lhe occurrence of Lwo phases and Lhelr Llme
lnLerval dlffer 1he 4 maln phases are explalned are as follows
1 8CSL8l1? (Lxpanslon)
1hls hase ls Lhe flrsL phase of Lhe buslness cycle and lL ls also called upswlng
uurlng Lhls phase Lhere ls rapld movemenL of Lhe prlces employmenL lncome
and producLlon (Lhe four maln varlables) lL sLarLs aL Lhe poslLlon of Lhe
equlllbrlum 1oLal ouLpuL sLarLs lncreaslng due Lo hlgher lnvesLmenL
When Lhe demand lncreases naLurally Lhe demand for Lhe raw maLerlals also
lncrease and so lL leads Lo lncrease ln producLlon and consumpLlon When
consumpLlon lncreases Lhe lncrease of producLlon leads Lo lncrease ln
employmenL 1he prlce of flnlshed goods rlse fasLer Powever Lhe rlse ln Lhe
wages salarles eLc do noL go hlgher compared Lo Lhe proflLs
ln Lhls phase Lhere lnvesLmenL acLlvlLy lncreases due Lo lncrease ln demand for
consumpLlon of goods 1here ls a general opLlmlsLlc feellng ln Lhe buslness 8uL
Lhls phase cannoL go lndeflnlLely as Lhe gap beLween Lhe cosL and prlce rlses
and Lhe proflLs begln Lo fall 1hls phase ends and lL ls followed by Lhe nexL
phase recesslon

2 8LCLSSlCn
When Lhe buslness cycle Lakes a downward Lurn form prosperlLy Lhe
depresslon phase beglns lL ls relaLlvely shorLer phase ln recesslon Lhe demand
of producLlon goods falls drasLlcally compared Lo consumer goods ln Lhls
producers no longer Lake fuLure lnvesLmenL declslons and so Lhe demand for
caplLal relaLed goods fall
1he banks no longer Lake lnLeresL ln lssulng loans as Lhe raLlo of cash reserves
and LoLal deposlLs falls Soon Lhe producLlon falls leadlng Lo unemploymenL
lncrease and accumulaLlon of lnvenLory sLocks 1here ls pesslmlsLlc feellng ln
Lhe markeL and a collapse ln confldence lf noL conLrolled aL Lhe beglnnlng by
flscal and moneLary measures recesslon wlll lead Lo even graver slLuaLlon
called depresslon whlch ls Lhe 3
rd
phase of buslness cycle

3 uL8LSSlCn (ConLracLlon)
uepresslon ls Lhe conLlnuaLlon of recesslon LhaL happens lf unchecked lL ls a
phase of low economlc acLlvlLy ln Lhls Lhe general demand for Lhe goods and
servlces falls fasLer Lhan Lhe producLlon of goods Lhough Lhe fall ls more ln
caplLal goods Lhan Lhe consumer goods
1he producers and whole salers wlll sLarL llquldaLlng Lhe asseLs LhaL Lhey plled
up durlng Lhe boom perlod roduce wlll noL Lake up any venLures Workers ln
large numbers wlll be Lhrown ouL of Lhelr [obs and banks wlll be havlng ldle
funds Some of Lhe noLable depresslons ln hlsLory are Lhe greaL depresslon of
1930 1940 eLc 1he nexL phase explalns Lhe paLh Lowards Lhe economy ln
overcomlng Lhe recesslon or depresslon
4 8LCCvL8?
1hls phase ls Lhe revlval of Lhe demand for goods and servlces 1hls phase
sLarLs when Lhe prlce of Lhe goods sLop falllng 1he economlc acLlvlLy lncrease
slowly and lL beglns usually when Lhe sLock of Lhe lnvenLory geLs exhausLed
1here ls an upward movemenL ln Lhe buslness acLlvlLy and Lhere ls a slow and
gradual rlse ln Lhe employmenL
1he producers are able Lo repay Lhe loans LhaL are Laken from Lhe banks and
banks release Lhe producers sLarL plannlng for Lhe producLlon leadlng Lo Lhe
employmenL lncrease 1he economy sLarLs lmprovlng 1he demand orders sLarL
pourlng ln and producers geL more encouragemenL ln produclng goods
1he sellers sLop Lhelr conservaLlsm ln buylng small amounL of goods and make
bulk purchases of goods Lo Lake advanLage of anLlclpaLed rlse ln prlce of Lhe
goods 1hls perlod generally favours Lhe expanslon of Lhe buslness acLlvlLy lL
can be sald LhaL Lhe revlval of Lhe goods and servlces may malnly be due Lo Lhe
2 reasons
l 1he change ln Lhe psychology and a favour Lowards opLlmlsm
ll new publlc lnvesLmenLs ln developmenL pro[ecLs
ML1nCDS ICk 1nL CCN1kCL CI 8USINLSS CCLL
Lven Lhough buslness cycles are creaLed by flucLuaLlons ln Lhe economlc
acLlvlLy so efforLs should be made Lo reduce Lhe lmpacL of Lhe buslness cycle
1he followlng are some of Lhe measures Laken Lo conLrol Lhe buslness cycles
1 MoneLary ollcy
Whenever Lhere ls a buslness cycle Lhere ls always a posslblllLy LhaL Lhere ls an
lnfluence of moneLary facLors 1hese facLors may noL cause Lhe buslness cycle
as a whole buL one Lhe cycle sLarLs Lhese facLors may acLually aggregaLe lL
MoneLary lnflaLlon leads Lo hlgher prlces hlgher proflLs and a generally an
opLlmlsLlc feellng ls generaLed as a whole
lL acLually sLrengLhens Lhe upswlng of Lhe cycle 1he cenLral bank plays an
lmporLanL role ln Lhls Whenever Lhere ls a Lendency of over expanslon of Lhe
buslness acLlvlLy Lhe cenLral bank should Lake measures Lo check and conLrol
Lhe expanslon of Lhe credlL Llkewlse when Lhere ls a Lendency of Lhe buslness
acLlvlLy Lo be on a slackenlng sLage Lhe cenLral bank should Lake measures Lo
ensure an adequaLe expanslon of credlL
2 llscal ollcy
Some Llmes [usL Laklng Lhe moneLary pollcy wlll noL be enoughL Lo conLrol Lhe
buslness cycle flucLualLons alone So Lhere should be a sufflclenL flscal pollcy Lo
achleve Lhe deslred resulLs lf Lhe buslness acLlvlLy shows slgns of slackenlng
down Lhe governmenL should enforce Lhe flscal pollcy Lo check Lhe downLrend
and Lhus ensurlng Lhe economlc sLablllLy AL Lhls Llme Lhe governmenL should
noL charge new Laxes Lo Lhe people so Lhls leaves more money ln Lhe hands of
Lhe people encouraglng Lhe people Lo spenL lL
1he goveremneL should lnlLlaLe publlc works pro[ecLs of Lhe varlous klnds
lnvolvlng expendlLure of money and addlLlonal employmenL of Lhe labour
1hese publlc works wlll provlde employmenL Lo Lhe unemployed workers and
Lhus Lhey wlll have Lhe money and wlll spend lL on purchaslng consumer goods
and servlces 1hls help reduclng Lhe effecL of decllne ln demand and buslness
acLlvlLy
CCNCLUSICN
8uslness cycles ofLen creaLe a slLuaLlon of uncerLalnLy for everyone (publlc
governmenL 8uslnesmen eLc) Lvery economy every naLlon and every counLry
ln world faces Lhe above four phases of buslness cycles 1hough buslness cycle
can never be Lamed cerLaln measures can be Laken Lo reduce Lhe lmpacL
especlally ln phases llke recesslon and depresslon ulLlmaLely we can say LhaL
buslness cycles are an lnLegral parL of an economy



8USINLSS CCLLS


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