ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

Business Cycle; A Brief Note

Updated on December 21, 2015
icv profile image

IRSHAD CV has been a student in Economics. Now he is doing Masters in Economics. He completed B.A. Economics from the University of Calicut.

Source

Introduction

Business cycle or trade cycle is an important concept in macro economics. The business cycle model is dealing with different stages of an open or a capitalist economy. When we analyze the economic system, there we can see continues fluctuations in output, price level, employment etc. That is we cannot meet an economical system which always keep stability or full employment condition. All things are varying, it is natural. In our day to day life we get statistics or data about GDP, unemployment rate, growth rate, inflation, deflation etc. They are varying from time to time. In short the economy’s nature is not regular but variable. Actually the changes in facts are like waves, because sometimes some factors are showing a higher value and sometimes a lower value. To analyze these fluctuations in the economy can be explained with the help of business cycles. Here this hub is aimed to explain the concept of business cycle and its different stages or status.

Business Cycles

There were different types of business cycles developed by different economists as listed in the table below.

Sl No.
Type of Cycle
Developed By
Year
1
The Long Jugler Cycle
Joseph Kitchin (UK)
1862
2
The Short Kitchin Cycle
Clement Jugler (France)
1923
3
The very Long Kondratieff Cycle
N.D Kondrratieff (Russia)
1925
4
Building Cylce
Warren and Pearson (US)
1937
5
Kuznets Cycle
Simon Kuznets (US)
--

Four Phases of a Business Cycle

As mentioned above the fluctuations or the variations in the economic activities are illustrated with business cycle. Generally there are four trends or phases can be see in a business cycle. They are

a) Depression

b) Recovery

c) Boom

d) Recession

These four possibilities or phenomenon and their nature are explained separately in the following section.

Depression

Actually depression is the final outcome of continues recession. That is recession refers to the declining of the economic activities which finally ends in depression. Depression is the most dangerous condition of any economy. In such a situation everything will bring down including interest rates, money supply, profits, other factor rewards, consumption, investment, savings etc.

Generally depression is like deflation, which means the resources (both monetary and other) are highly limited in supply. So, naturally the rewards for economic activities will be very less and since the economic activities are came in to its trough. Even though interest rates are very less, they may not be any tendency to increase borrowings or investment, because of the unstable condition of the economy and which never yield any profits. This condition halt for further employment opportunities and increase the rate of unemployment. Similarly the public hold limited amount of money, so their demand will be too less and the expenditure will also reduce.

In short, depression create an emergency or an unstable condition in the economy. Which widely affect almost all the economic sectors including primary sector, industrial sector and service sector.

Recovery

Recovery is a situation comes with hopes after crisis or depression. That is during depression the economy is entirely inactive. Once the economy began to over take the dangerous effects of depression making investments, generating employment opportunities etc, it will activate the economy.

Since human wants are unlimited, the people may demand new products even during depression. In such a condition investors will be more enthusiastic to utilize this opportunity. They may take loans and advances to setup industries and to start production. It will create expansion of credit, employment, demand, expenditure etc. in the economy. In short, recovery is a necessary stage for any country to optimum utilize its resources, because it is the phase of enhancing the economic activities.

Boom

Boom is arrived by a series of economic activities in recovery phase. That is during recovery phase, the unemployment will reduce, the demand and expenditure will increase. The investment and saving is also increase. In fact these impacts will continue until boom is arrived. Boom is a phase of trade cycle, where almost all the economic resources are utilized. That is the attainment of full-employment.

The main impact of boom is the price rising. There will be a continues rise in prices of goods and services. Because people have demand and money. But once the over utilization or the continuation beyond the boom will badly affect the economy. The inflationary price rising in the peak of the economic condition lead to the next phase recession.

Recession

The down warding of economic activities from boom is known as recession. Here the main feature of recession is the reduction in prices. Which will shrink the profit margin of the investor and since some industrialist may began to close their business or productions. In this unfavorable condition, the investment, savings, demand, expenditure etc. began to decline. This will ends in depression. A graphical model of a trade cycle is showing below.

Conclusion

Business cycle is a simple model in macroeconomics which explains different phases of an economy. As mentioned above depression, recovery, boom, recession are the four phases. In reality these phenomenon may happen unexpectedly in different country or economy. For example: A country may jump from recession phase to recovery phase by skipping the depression phase. Every thing is based on the nature and the efficiency of the economy. In fact the concept of business cycle is a common and widely using tool of economists, policy makers etc

Comments

    0 of 8192 characters used
    Post Comment

    • profile image

      Saheb chowdhury 

      2 years ago

      Thank u very much

    • icv profile imageAUTHOR

      IRSHAD CV 

      4 years ago from India, Kerala

      Thanks teaches12345 for responding

    • teaches12345 profile image

      Dianna Mendez 

      4 years ago

      Good coverage on the business cycle. It still is a pattern useful to owners in making a successful venture.

    working

    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, hubpages.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: https://hubpages.com/privacy-policy#gdpr

    Show Details
    Necessary
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
    Features
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Marketing
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Statistics
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)